COMMISSION STAFF WORKING DOCUMENT Country Report Netherlands 2015 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances {COM(2015) 85 final} This document is a European Commission staff working document . It does not constitute the official position of the Commission, nor does it prejudge any such position.
Date: 2015-02-26
Institutions: European Commission
Subjects: Netherlands, competitiveness, economic disparity, economic growth, economic recovery, economic reform, educational system, employment statistics, macroeconomics, renewable energy, small and medium-sized enterprises, structural adjustment













EUR-Lex - 52015SC0038 - EN











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52015SC0038

COMMISSION STAFF WORKING DOCUMENT Country Report Netherlands 2015 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances  {COM(2015) 85 final}     This document is a European Commission staff working document . It does not constitute the official position of the Commission, nor does it prejudge any such position. /* SWD/2015/0038 final */









      
Executive summary  1
1.       Scene
setter: economic situation and outlook  3
2.       Imbalances,
Risks and Adjustment 9
2.1.   Current
Account 10
2.2.   Saving and
Investment 15
2.3.   Household
Debt and Housing Market Developments 24
3.       Other
structural issues 32
3.1.   Fiscal-Structural
Issues and Taxation  33
3.2.   Labour Market
and Social Policies 36
3.3.   Education  42
3.4.   Structural
Measures 43
AA.   Overview
Table  45
AB.   Standard
Tables 50
LIST OF Tables
1.1.     Key economic, financial and
social indicators - Netherlands 7
1.2.     MIP Scoreboard Indicators 8
2.1.1.  Main trade partners: breakdown
of trade volumes in services (2013) 12
2.2.1.  Net lending by non-financial
corporations in 2013 (as a percentage of GDP) 19
AB.1.  Macroeconomic indicators 47
AB.2.  Financial Market indicators 48
AB.3.  Taxation indicators 48
AB.4.  Labour market and social
indicators 49
AB.5.  Expenditure on social
protection benefits (% of GDP) 50
AB.6.  Product market performance and
policy indicators 51
AB.7.  Green Growth  52
LIST OF Graphs
1.1.     Real GDP
growth and contributions 3
1.2.     Labour
market developments 4
1.3.     Productivity
gap with the US: NL, DE and EA-12  5
2.1.1.  Breakdown of
external position (current and capital accounts) 10
2.1.2.  Share of
re-exports by economic category  11
2.1.3.  Net services
(exports-imports, in EUR billion (LHS) and as a % of GDP (RHS), 2013) 12
2.1.4.  Breakdown of
the primary income balance (% of GDP) 13
2.1.5.  Investment
income expenditure without SFIs 13
2.1.6.  Investment
income receipts without SFIs 14
2.2.1.  Net Lending/
Borrowing by Sector 15
2.2.2.  Saving per
sector (% of GDP) 15
2.2.3.  Investment per
sector in (% of GDP) 15
2.2.5.  Annual
household income  16
2.2.6.  Gross saving
ratio (% of disposable income) 16
2.2.7.  Gross saving
(in % of GDP) 16
2.2.8.  Liquid assets
and debt service to income  17
2.2.10.          Investment
by type  18
2.2.11.          Savings
and domestic investment of non-financial corporations (in % of GDP) 19
2.2.12.          Domestic
savings and investment of non-financial corporations 20
2.2.13.          Net
FDI outflow and net foreign saving of non-financial corporations 20
2.2.14.          Gross
Fixed Capital Formation - Total Economy, current prices 23
2.3.1.  Breakdown of
y-o-y changes in debt-to-GDP ratios, households 24
2.3.2.  Loan-to-value
ratios of homeowners 24
2.3.3.  Negative
equity by age, 2014  25
2.3.4.  Loan-to-value
ratios of homeowners 25
2.3.5.  Mortgages under
water per iIncome quartile  25
2.3.6.  Average LTV
per income quartile  26
2.3.7.  Mortgage risk
by age group   26
2.3.8.  Non-performing
loans 26
2.3.9.  Return on
assets and equity of banks 27
2.3.10.          Evolution
of house prices (lhs, 2010 = 100) and number of transactions 27
2.3.11.          Residential
building permits, price peak and trough  27
3.2.1.  Labour market
indicators 35
3.2.2.  Permanent,
temporary and self-employed workers as a share of total employment 37
LIST OF Boxes
1.1 Economic Surveillance Process                                                                                                                    6   
2.2.1 Balance Sheets of Non-Financial
Corporations                                                                                    19
2.2.2.  Balance Sheets of Non-Financial
Corporations 21
2.3.1.  Social Housing  28
2.3.2.  Long-Term Scenarios on Private
Sector Debt 29
2.3.2.  Long-Term Scenarios on Private
Sector Debt 39
The Netherlands is experiencing a
gradual economic recovery mainly driven by domestic demand. Following the contraction in real GDP in 2012 and 2013, the Dutch
economy returned to positive economic growth in 2014. Economic growth is
expected to accelerate to 1.4 percent in 2015 and 1.7 percent in 2016. The
economic recovery is increasingly being driven by domestic demand, based on
real wage growth and better labour market conditions. Consumer confidence and
households' investment are also supported by the nascent recovery in the
housing market. The Dutch labour market showed a moderate revival in 2014,
which is expected to continue in the coming years. Inflation is expected to
remain muted, supporting real wage growth in the short term but limiting
deleveraging. Government finances are expected to improve in 2015 and 2016. 
This Country Report assesses the
Netherlands' economy against the background of the Commission's Annual Growth Survey
which recommends three main pillars for the EU's economic and social policy in
2015: investment, structural reforms, and fiscal responsibility. In line with
the Investment Plan for Europe, it also explores ways to maximise the impact of
public resources and unlock private investment. Finally, it assesses the
Netherlands in the light of the findings of the 2015 Alert Mechanism Report, in
which the Commission found it useful to further examine the persistence of
imbalances or their unwinding. The main findings of the In-Depth Review
contained in this Country Report are: 
The Netherlands’ current account has
been constantly in surplus for over three decades. The
current account surplus is traceable to fundamental features of the Dutch
economy, such as energy exports, goods re-exports and the international capital
flows of multinationals. The surplus also reflects the ongoing and necessary
deleveraging of households and the (still weak) cyclical position of the
economy. Overall, underlying mismatches between savings and investment appear
to be smaller than the headline figures suggest.
Investment activity in the Netherlands
declined as a percentage of GDP since the turn of century, partly as a
consequence of lower prices of investment goods (in particular of information
and communication technology equipment) and, in particular since 2008,  as a
consequence of lower investment in construction and real estate. Public investment and private investment in productive equipment
were relatively stable. For strengthening the economic growth of the
Netherlands in the medium run, the declining public R&D-intensity and
better use of the excellent knowledge base of the country warrant attention.
The pension and tax systems give
households strong obligations and incentives to invest in housing and save in
pension schemes, leading to potentially inefficient allocation of capital. People have the incentive to buy a dwelling early in their life by
incurring high levels of mortgage debt. The obligation to save high amounts in the
pension system early in the life cycle also reduces the financial room for
manoeuvre of young people. Pension funds are somewhat risk-averse, which could
lead to a suboptimal allocation of their investments.  The statutory
retirement age has been increased (and linked to life expectancy) but the
distribution of costs and risks has not changed in the (funded) occupational
pillar. This has an impact on the accumulation of savings and the
allocation of capital in the pension system, possibly reducing the long-term
growth prospects of the Dutch economy.
Driven by tax incentives, high household
debt levels have built up over decades and are expected to decline slowly in
the coming decades. Long-standing tax incentives
and financial innovations have encouraged households to become highly indebted
by taking up mortgages. Newly introduced policy and supervisory measures are curbing
mortgage growth. Risks from the high level of household debt to the financial
sector are contained by, for example, the high net asset position of
households, prudent loan-to-income ratios and the recovering housing market. 
The functioning of the housing market is
still distorted by the substantial mortgage interest deductibility and a rental
market that is not functioning properly. Mortgage
interest deductibility is partially and very gradually being phased out but a
substantial part of the subsidy will remain. Mortgage interest deductibility still
gives households the incentive to invest in relatively unproductive assets. The
emergence of a properly functioning rental market is constrained by a social
housing segment still facing allocation inefficiencies.
The Country Report also analyses
macroeconomic issues and the main findings are:
The labour market is holding up well and
poverty remains low. The Dutch labour market is in
relatively good shape and unemployment is decreasing. Some groups of people at
the margin of the labour market face difficulties to enter the labour market.
Poverty has only increased marginally since 2008 and remains low.
Some forms of growth-friendly
expenditure are under pressure. Whereas the
education system delivers good results and public expenditure for education
remains high, public support for research and innovation is set to decline over
the coming years. 
Overall, the Netherlands has made some
progress in addressing the country-specific recommendations issued by the
Council in 2014. The Netherlands has made some
progress in protecting expenditure directly relevant to growth but has only
made limited progress in further reforming the housing market. In particular,
the partial phasing-out of the mortgage interest deductibility has not been
stepped up despite the opportunity created by a recovery in the housing market
and an improving economic environment. Some or even substantial progress has
been made regarding the recommendations concerning the pension system,
long-term care and the labour market. 
The Country Report reveals the policy
challenges stemming from the analysis of macro-economic imbalances:
The Netherlands has to find the right
balance between the necessary deleveraging, in particular of households, and
giving sufficient support to domestic demand to sustain the economy recovery. As long as households increase their savings to deleverage, the
current account surplus will remain high and above the level justified by
fundamentals. 
Raising the growth potential will depend
on attracting sufficient labour and facilitating the most efficient allocation
of capital. Greater labour utilisation is needed to
soften the effects of demographic changes. Reforms have been implemented to
make work financially more attractive but disincentives to work from taxes and
social security contributions remain high. The role of pension-regulation and
the tax system in the allocation of capital will be increasingly important in
fostering economic growth.
With an ageing society, the Netherlands
faces the challenge of maintaining its level of welfare in the future. With an ageing population economy growth depends ever more on
improvements in the efficiency and the resilience of the economy. In
particular, a regulatory framework that supports growth and investing in
research, innovation and education plays a key role. 
The macroeconomic situation and developments 
The Netherlands is experiencing a
gradual economic recovery. Following the
contraction in real GDP in 2012 and 2013, the Dutch economy returned to growth
of an estimated +0.7% in 2014 (Graph 1.1). The economic recovery is increasingly
driven by domestic demand, based on real wage growth and better labour market
conditions. The housing market is improving as well, with an increase in
transactions in the final quarters of 2014. This is likely to give a further
boost to economic sentiment and may result in an increase in housing
investment. Recent monthly data and soft indicators suggest that the pickup in
investment in the second half of 2014 is set to continue, supporting a gradual
domestic demand-led recovery. The Commission winter forecast projects growth of
1.4% in 2015 and 1.7% in 2016. 
 Graph 1.1:     Real GDP growth and contributions 
 Source: European Commission (AMECO) 
The on-going deleveraging by households
is likely to put a limit on the speed of economic recovery. As a legacy of the credit-led housing boom that started in the
1990s, Dutch households remain highly indebted. Large liabilities, in
particular mortgage debt, go alongside large illiquid assets in the form of
housing wealth and pension wealth. The ratio of total debt to disposable income
stood at 250% in 2012, one of the highest in the euro area.([1]) Servicing this debt and paying high health and second pillar
pension contributions reduce the capacity of households to accumulate liquid
assets. For this reason, although real household disposable income is expected
to increase in the coming years, deleveraging pressures are expected to
restrain a fast recovery in consumption, as additional household income is
likely to be used for paying down debt. The household saving rate is expected
to increase to 16.4 percent of disposable income in 2016, about two percentage
points higher than the long term average of 14.4 per cent.([2])
The moderate revival of the Dutch labour
market in 2014 is expected to continue. Well after
the start of the financial crisis, the Dutch labour market performed relatively
well (Graph 1.2). In the period 2009-12, the Netherlands
had one of the lowest rates of unemployment in the EU, as employers engaged in
labour hoarding on a large scale. After 2012, however, the unemployment rate
increased significantly, peaking at 7.3 percent of the labour force in February
2014. Over the course of 2014, the number of new vacancies increased and
employment growth picked up. In December 2014, the unemployment rate stood at
6.7%, more than 0.5 percentage points lower than at the beginning of the year.
These trends are expected to continue, in line with the broader recovery of the
Dutch economy. Employment growth (in full-time equivalent) is expected to
increase by about ½pp in the coming years and the unemployment rate is
estimated to decline gradually to 6.6% in 2015 and 6.4% in 2016, respectively. 
 Graph 1.2:     Labour market developments 
 Source: European Commission (Eurostat and Ameco) 
Inflationary pressures are expected to
remain muted. Harmonized Index of Consumer Prices
(HICP) inflation is forecast at 0.4 % in 2015 and rising to 0.7% in 2016.
In particular, energy prices provide a negative contribution to the overall
index in 2015. Positive price pressure is expected to come from the services
sector. With the unemployment rate standing well above pre-crisis levels and
utilisation rates in the industry only at around 80%, the excess capacity in
the economy is likely to prevent inflation from picking up again in the coming
years. 
The current account surplus is expected
to remain elevated.  The current account
surplus of the Netherlands is for a substantial part driven by structural
features of the economy, such as the main-port function, re-exports and exports
of natural gas. Part of the current account surplus can also be explained by
the still weak cyclical position of the economy. As previous analysis has
shown, wage moderation was not a decisive factor driving the trade surplus.([3]) Falling import prices and the deleveraging of households will not
support a quick adjustment in the current account. However, in the medium term
the current account surplus will decline as domestic demand recovers and
deleveraging pressures ease.
The headline deficit of the government
is set to decline further. For 2014, the general
government deficit is estimated to have reached 2.8 % of GDP. In 2015 and
2016, it is expected to improve to 2.2 % and 1.8% of GDP, respectively.
In 2015, the most important policy measures affecting the budget are the
reduction of the maximum accrual rate of pensions (via its positive effect on
tax revenues) and savings from the decentralisation of long term-care. For
2016, the forecast takes into account the measures detailed in the multi-annual
budget agreement (‘Regeerakkoord’) and subsequent policy packages. The
improvement in the budget balance also stems from the recovery of domestic
demand, which should lead to a more tax-rich growth. The structural deficit is
estimated at 0.7% of GDP in 2014, and is expected to deteriorate slightly in
both 2015 and 2016. The gross government debt ratio is forecast to increase
slightly and remain at 70.5 % of GDP in both 2015 and 2016. 
Productivity
and labour utilisation
Productivity has been declining,
possibly also on account of declining domestic investment activity on the part
of non-financial corporations. A world-class
educational system, improvements in human capital, and public and private
investment in innovation are fundamental ingredients for future productivity
growth. Productivity in the Netherlands used to be higher than in many other
European countries and comparable to the US level. However, since 2008, the
country has gradually lost this advantage (Graph 1.3). This might be related to
under-investment in Europe.([4]) While a
gradual recovery of economic growth and higher investment activity may yield
higher productivity growth in the coming years, it is unlikely that a recovery in
the economic cycle will close the gap with the US.
 Graph 1.3:     Produ ctivity gap with the US: NL, DE and EA-12 
 Source: European Commission (AMECO; GDP per hour worked, PPS) 
Labour utilisation is low in terms of
hours worked both at the extensive and at the intensive margins Although overall participation rates in the Netherlands are high,
still one out of four persons in the active age-group does not participate.
Moreover, the annual average of hours worked per worker is among the lowest in
the EU. This is largely the result of the higher incidence of part-time working
arrangements, particularly among women. Due to the current incentive structure,
increased labour participation often only gives rise to a limited increase in
disposable income as the marginal tax and non-tax burden on labour income is
high. 
Developments in the housing market
Mortgage interest deductibility remains substantial
and the rental market is not functioning properly. Although
measures have been taken in recent years to partially phase out mortgage
interest deductibility, a substantial part of the subsidy will still remain. Mortgage
interest deductibility continues to encourage to take on large mortgages and to
drive domestic savings and investment towards relatively unproductive (real
estate) assets. Because of the different tax treatment of owner-occupied and
rental housing supply of rental properties remains low and rental fees high. 
The private rental market is still not
functioning fully and there are still inefficiencies concerning the allocation
of social housing to dwellers in need. The rental
market is dominated by a large social housing segment which in effect crowds
out the private rental market. Even though a third of all dwellings are owned
by social housing corporations, long waiting lists still exist due to allocation
inefficiencies. Labour mobility is restrained by the way social housing is
allocated. This negatively impacts employment prospects, especially of the
lower-skilled.
The Dutch economy in perspective
The growth outlook of the Netherlands is
dependent on policies to mitigate the impact of deleveraging on consumption and
growth. In order to lower the saving rate and boost
the consumption of the active population, the Netherlands have reduced tax
allowance for pension contributions. In addition, to support deleveraging the
government in 2014 temporarily exempted gifts from tax when used by the
beneficiary for a home (acquisition, renovation, or mortgage reduction). In
recent years the government has also taken measures to prevent unsustainable
growth of mortgage loans, notably through a partial and gradual limitation of
mortgage interest deductibility, a gradual lowering of maximum loan-to-value
ratios and an (implicit) obligation to amortise mortgage debt. However, total
mortgage debt will only decline slowly. About one third of all homeowners will
continue to have negative net housing equity and thus may be discouraged from
engaging in housing market transactions. 
In the context of an ageing population
and declining productivity growth trends, the Netherlands faces a risk of a
long-term decline in its potential rate of economic growth. On account of its high degree of openness, and its position as
important gate-way to Europe and headquarters to a number of multinational
enterprises, much of the income of the Netherlands is generated abroad.
However, the Dutch welfare system, with high pensions and high quality
healthcare, depends to a large extent on the domestic economy's capacity to
generate income, to reverse the recent declining trend in productivity and to increase
labour utilisation. 
Systemic incentives may not be fostering
an efficient allocation of resources for long-term growth. The Dutch institutional setup affects significantly the households'
savings and investments decisions over their entire lifespan. Ageing
population, falling long-term interest rates and health care expenditure
increases have driven up the non-tax burden on labour such as pension
contributions and healthcare premiums. Together with labour taxes, these
compulsory non-tax payments significantly reduce disposable income of
households, in particular in their active years.() Through the pension and
health care sector, income is being transferred within and across generations. Moreover,
the tax system creates incentives to households to invest in low-productive
capital goods such as real estate that cannot to be used to foster long run
growth. Finally, although pension funds have been successful in managing their
members' assets, the regulatory framework could lead to a suboptimal allocation
of resources both from the perspective of households and, more generally, from
a macroeconomic perspective.
 Box 1.1: Economic surveillance process The Commission’s Annual Growth Survey, adopted in November 2014, started the 2015 European Semester, proposing that the EU pursue an integrated approach to economic policy built around three main pillars: boosting investment, accelerating structural reforms and pursuing responsible growth-friendly fiscal consolidation. The Annual Growth Survey also presented the process of streamlining the European Semester to increase the effectiveness of economic policy coordination at the EU level through greater accountability and by encouraging greater ownership by all actors. In line with streamlining efforts this Country Report includes an In-Depth Review — as per Article 5 of Regulation no. 1176/2011 — to determine whether macroeconomic imbalances still exist, as announced in the Commission’s Alert Mechanism Report published on November 2014. Based on the 2014 IDR for the Netherlands published in March 2014, the Commission concluded that the Netherlands was experiencing macroeconomic imbalances requiring monitoring and policy action, in particular regarding developments in the areas of household debt and the current account surplus. This Country Report includes an assessment of progress towards the implementation of the 2014 Country-Specific Recommendations adopted by the Council in July 2014. The Country-Specific Recommendations for the Netherlands concerned public finances, the housing market, the pension system and the labour market. 
 Table 1.1:       Key economic, financial and social indicators - Netherlands 
 Source:   Eurostat, ECB, AMECO. 
 Table 1.2:       MIP Scoreboard Indicators 
 Source:  European Commission, Eurostat and DG ECFIN (for the indicators on the REER) 
The Netherlands has been recording
persistent current account surpluses for over three decades. A current account surplus indicates that resources produced (or
income received) in the country exceed the resources used (for consumption or
fixed investment) in that same country (Graph 2.1.1). According to the MIP (Macroeconomic
Imbalance Procedure) scoreboard headline indicators, the three-year average of
current account balances from 2011 to 2013 was 9.8 % for the Netherlands. This
section looks at the evolution of the current account surplus and its
components. 
 Graph 2.1.1:   Breakdown of external position (current and capital accounts) 
 Source: European Commission (Eurostat) 
The Netherlands is producing
substantially below full capacity, putting upward pressure on the current
account surplus. The Netherlands is cyclically in a
worse economic situation than its main trading partners. This implies that
imports are smaller and the current account surplus is larger than in a
situation where the Netherlands and its trading partners were producing at full
capacity. This effect is estimated to account for 1.7 percentage points of the
current account surplus of around 10 % of GDP observed in 2013. 
Structural factors contribute
importantly to the Dutch current account surplus.
Re-exports of foreign-produced goods and natural gas production have an impact
on the trade in goods, while the behaviour of multinational companies and the
investment decisions of the funded pension system influence the income
accounts. Given the intrinsic nature of these economic features, the current
account surplus can largely be regarded as structural. As previous analysis of
standard indicators has shown, the price and costs competitiveness of the
Netherlands have neither improved nor deteriorated significantly in the recent
past. ([5])
Consequently, wage moderation does not seem to play a major role in generating
the trade surplus. Despite sizeable current account surpluses over the last
years, the net international investment position of the Netherlands only
amounted to 31.1 % of GDP in 2013, indicating that the flow of surpluses does
not fully translate into a build-up of liabilities in other countries.
Trading goods is a major strength of the
Dutch economy([6])
Underlying the high current account
surplus are large gross trade flows in goods and services, making the
Netherlands one of the most open economies in the EU. The continuously positive trade balance is strongly influenced by
the geographical position of the Netherlands that is exploited through a large
harbour([7]) and
high-quality infrastructure and the production and export of natural gas.
The Netherlands' most important trading
partners are Germany, Belgium and the United Kingdom, with China gaining a
substantial market share in the more recent past.
While Germany and Belgium have been major import and export markets for a long
time, imports from emerging markets have increased recently, especially from
China. Machines and transport equipment constitute the bulk of Chinese imports.
Exports to China have also been growing substantially; but, overall, the
Netherlands has a large trade deficit with China as many goods that are
imported from China are re-exported to other EU Member States. Trade with
Russia is very different. Over 90 % of all imports from Russia are crude oil
and related products, so imports from Russia are not as diversified as Chinese
imports. Less than 2 % of all exports go to Russia, of which only a small
fraction is currently subject to sanctions. EU Member States which acceded in
2004 have an import share of 4.5 % and the combined import share of southern
euro area countries (Spain, Italy, Portugal and Greece) is also around 4.5 % ([8]). Due to the low trading volumes vis-à-vis the southern Member
States, potential spillover effects from the Dutch economy to those countries
are limited; this means that an increase in Dutch consumption would not
necessarily translate into higher demand for goods from the southern
countries.([9]) 
The positive trade balance in goods is
partly explained by the contribution of re-exports.
Statistics Netherlands (CBS) defines re-exports as 'Goods transported via
the Netherlands, which are temporarily owned by a resident of the Netherlands,
without any significant industrial processing.' In practice, this means
that goods are counted as re-exports if the six-digit code that customs assigns
to goods every time they enter or leave the country does not change. The share
of re-exports in total exports increased from 42.2 % in 2002 to 46.1 % in 2013.
Regarding machinery and transport equipment, re-exports have been high since
the early 2000s, representing 60-70 % of total machinery exports. The four
sectors presented in Graph 2.1.2 account for 75 % of total exports in
2013.
 Graph 2.1.2:   Share of re-exports by economic category 
 Source: Statistics Netherlands 
The value added to re-exported goods is
estimated to add approximately 2.3 percentage points of GDP to the trade in
goods surplus. Goods sent from China to Germany are
often unloaded in the port of Rotterdam. The strong growth of exports and
re-exports reflects the increasing importance of international trade for the
Dutch economy and the difference in the product mix of re-exports (mainly
computers and electronic equipment) and domestically produced export goods.
Whereas domestically produced exports have a value added of around 59 cent per
euro export value, the value added of re-exports is 7.5 cent per euro export
value([10]). This
amount of value added is remarkable, given that re-exports are by definition
only subject to very limited changes after they have been imported. Using these
figures, the value added to re-exported goods can be estimated at around EUR 15
billion in 2013 (2.3 % of GDP).
Natural resources also sustain the surplus
Net exports of natural gas constitute
another structural factor adding about 1 % to 2.5 % of GDP to the trade surplus. This contribution mainly reflects the combined net exports of
domestically produced gas and the associated reduced need for energy imports.
Additionally, the Netherlands has become an important node in the
intra-European gas trade. Looking ahead, with the depletion of domestic
reserves, the importance of natural gas production for the Dutch economy is
expected to gradually fade. In 2014, and again in February 2015, lower
production ceilings were put in place in order to mitigate the sensitivity to
gas production-related earthquakes in the northern province of Groningen. These
developments, combined with falling oil and gas prices, will significantly
reduce the contribution of this factor to the trade surplus in both the short
run.
Trade in services is growing
In past years, the Dutch trade in
services has increased considerably. From 2009 to
2013, service imports increased by 21 % (to EUR 94 billion, 15 % of GDP) and
service exports grew by 34 % (to EUR 110 billion, 17 % of GDP). On the import
side, the main trading partners were the US, Bermuda, Germany and the UK (Table
2.1.1) ([11]). The leading partners in export of services are Ireland, Germany,
the UK and the US. The most important Dutch service export to Ireland is
'royalties & license fees' ([12]). A number of international companies have subsidiaries in the
Netherlands and Ireland for reasons of tax optimisation. In 2014, the Irish
government decided to change the corporate tax system, thereby making such
arrangements less attractive.
 Table 2.1.1:     Main trade partners: breakdown of trade volumes in services (2013) 
 Source: Statistics Netherlands 
The surplus in the trade in services is
mainly driven by transport services and royalties & license fees (Graph 2.1.3). The net export of transport services
accounts for 1.4 percentage points of the current surplus and is related to the
extensive trade and transiting of goods and thus the geographical location of
the country. Another 1 percentage point of the surplus is driven by the net
export of services related to royalties & license fees. This is mainly due
to the service exports to Ireland, which account for 79 % of the positive Dutch
trade balance in services. At the same time, Dutch people use more traveling
services abroad than foreigners use in the Netherlands, which reduces the
surplus in the services account by almost 0.6 pp.
 Graph 2.1.3:   Net services (exports-imports, in EUR billion (LHS) and as a % of GDP (RHS), 2013) 
 Source: Statistics Netherlands 
Dutch exposure to Russia through foreign
direct investment (FDI) is limited. In 2013, Dutch
direct investment in Russia amounted to nearly EUR 51 billion (7.9 % of GDP).
However, this figure can largely be attributed to special financial
institutions (SFIs) that channel funds through the Netherlands. The outflows of
direct investment to Russia excluding SFIs totalled EUR 766 million (or 0.1 %
of GDP) in 2013.([13]) The
exposure of the Dutch banking sector to Russia is limited as well, standing at
EUR 11.4 billion (1.1 % of total international bank exposure or 1.9 % of GDP)
in September 2014.([14])
Primary income
Income generated by foreign investments
is the main driver of the primary income account.
The primary income account gives an overview of the income transactions between
Dutch residents and non-residents. As in 2013, in previous years the primary
income account was mainly driven by investment income, which is by far the
largest item in absolute volume (standing at 32.6 % (revenue) and 29.5 %
(expenditure) of GDP, respectively). Both revenue and expenditure originate
mainly from direct investment abroad and portfolio investment. Other primary
income components are much smaller in their absolute volume and balance, both
accounting for less than 1 % of GDP. As illustrated in Graph 2.1.4, the balance of direct investment has
more than doubled since 2008. This increase resulted in a positive primary
income balance in 2010 and has continuously driven the positive balance since
2010.
When considering primary income, the
transactions of SFIs (Special Financial Institutions) are disregarded. ([15]) When including SFIs in the
calculation, the volume of investment income is much higher. In fact, in 2013
SFI transactions accounted for 60 % of inflows and 65 % of outflows of primary
income. However, their effect on primary income is minor, after balancing
primary income inflows and outflows (see Graphs 2.1.6 and 2.1.5).
 Graph 2.1.4:   Breakdown of the primary income balance (% of GDP) 
 Source: De Nederlandsche Bank and European Commission Winter Forecast 2015 
 Graph 2.1.5:   Investment income expenditure without SFIs 
 Source: De Nederlandsche Bank 
 Graph 2.1.6:   Investment income receipts without SFIs 
 Source: De Nederlandsche Bank 
Secondary income
The secondary income balance remains
negative. Secondary income captures further
redistribution of income through current transfers by governments, charitable
organisations and other sectors. In 2013 the Dutch secondary income account ran
a deficit of 2.2 % of GDP. These transfers to abroad were roughly equally
provided by the general government sector and 'other sectors', similarly to
previous years.
For decades, the Dutch economy has been
a net lender to the rest of the world. In 2013, net
lending([16]) of the
economy amounted to 7.9 % of GDP, of which 6.3 percentage points originated
from non-financial corporations, 3.4 percentage points from households and 0.5 percentage
points from the financial sector. The only sector borrowing was general
government, which ran a deficit of 2.3 % of GDP in 2013 (Graph 2.2.1). This section first discusses some
general patterns of saving and investment before it looks deeper into the
household and non-financial corporation sectors. Household saving and
investment decisions are highly influenced by institutional features (e.g. of the
pension system). Household savings have been relatively stable while investment
experienced a sharp drop in 2009 (Graphs 2.2.2 and 2.2.3). Saving and investment decisions of
non-financial corporations (Graphs 2.2.2 and 2.2.3) seem to be driven by the increasing
importance of foreign investment. As a result, savings of corporations have
increased substantially since the turn of the century while their domestic
investment has decreased slightly.
 Graph 2.2.1:   Net Lending/ Borrowing by Sector 
 Source: European Commission (Eurostat) 
 Graph 2.2.2:   Saving per sector (% of GDP) 
 Source: European Commission (Eurostat) 
 Graph 2.2.3:   Investment per sector in (% of GDP) 
 Source: European Commission (Eurostat) 
Households
Institutional features affect the saving
pattern of Dutch households. The ECB's household
budget survey shows that persons aged 35 to 64 in the Netherlands have a much
lower ability to save than older households. ([17]) This seems to be at odds with economic theory. Another aspect
of this finding is the unusual income pattern across different generations of
households (Graph 2.2.5). Contrary to the more common,
hump-shaped profile, earnings in the Netherlands are smoothed out over the life
cycle due to high transfers from the working population to the older
generations through the pension system, leaving little room for additional,
precautionary savings. 
 Graph 2.2.4:   Annual household income 
 Source: The Eurosystem Household Finance and Consumption Survey 
The savings of Dutch households compared
to their disposable income have been increasing since the mid-2000s and are now
relatively high. The household sector in the
Netherlands saved 15.7 % of its disposable income in 2013, more than in any
other Member State except Germany (Graph 2.2.6). However, only since 2011 has the
Dutch saving ratio ([18]) started to
steadily outperform the euro area average ([19]) and exceed Belgian and French ratios.
The high saving rate relative to income
does not translate into high gross savings as a percentage of GDP. Even though wages and salaries (in proportion to GDP) have been
about 2 percentage points higher than in Germany and on par with Belgian and
French wages, disposable income is relatively low, largely due to income taxes
and high social security contributions. As a result, gross savings have for
several years fallen short of the euro area average (Graph 2.2.7) and amounted to only 7.7 % of GDP in
2013.
 Graph 2.2.5:   Gross saving ratio (% of disposable income) 
 Source: European Commission (Eurostat) 
 Graph 2.2.6:   Gross saving (in % of GDP) 
 Source: European Commission (Eurostat) 
Liquid assets of the working population,
that could be used when negative shocks to income occur, are relatively low. Saving for old age takes the form of social security contributions
and life insurance premiums. Pension contributions for employed workers are
substantial and are not included in the saving rate. When pension contributions
are taken into account as savings, the resulting Dutch savings rate is above
the average of the same indicator for the euro area by a considerable margin.
Housing investments are often financed through mortgage loans that put monthly
payment obligations on households. Most of these outlays increase the saving
rate of Dutch households; however, they do not constitute liquid financial
assets that could be tapped when negative shocks hit income or wealth. Indeed,
according to the ECB's household budget survey, fewer Dutch households (33.1 %)
report that they can set money aside than in the euro area (41.1 %) or in
Germany (53.1 %), where this ratio is the highest. In sum, the working
population saves more in total than in any other country (accounting for
pension contributions as savings), yet liquid savings are quite low (see Graph 2.2.8).
 Graph 2.2.7:   Liquid assets and debt service to income 
 Source: The Eurosystem Household and Consumption Survey 
Pension funds hold a large part of households
savings. The Netherlands has a three pillar pension
system that results in high replacement rates (i.e. a high pension benefit in
percentage of pre-retirement income) and low poverty among the elderly.
Virtually all employed workers have to participate in one of the over 300
pension funds that are managed by the social partners and usually cover a
certain sector or a large company (the number of pension funds has decreased
steadily in recent years and concentration is high). 
The pension funds have accumulated
substantial assets but liabilities have grown even more strongly during the
crisis. Pension contributions are in most cases
around 16-20% of gross income. Pension funds have accumulated assets amounting
to over 150% of GDP in 2013, which makes the second pillar the largest (by
assets) in the EU. The ratio between assets and liabilities (the coverage
ratio) has worsened during the crisis partly due to the low interest rates that
have decreased the rates the pension funds have to use to discount their
liabilities. As a result, many pension funds had to restore their coverage
ratios by increasing contributions. This has led to lower disposable income,
amplifying the procyclicality inherent in the pension system.
The Dutch pension system frontloads
savings to the early years of the working life. The
pension system credits the same amount of old-age entitlement for each euro of
contribution paid by the member, irrespective of the worker's age. This implies
an intergenerational transfer from young people to the old. The regulatory
framework reduces the financial margin for younger households to engage in
voluntary savings to smooth out income shocks, to accumulate a downpayment for
a dwelling or to amortise a mortgage.
The regulatory features of the pension
system could lead to a suboptimal allocation of capital. Given the incentives that are created by the regulatory framework
pension funds are free in their investment decision but members cannot freely
choose their preferred allocation of pension assets, potentially leading to a
suboptimal allocation of assets from a household's point of view. Investment
decision could also be suboptimal from a macroeconomic perspective. Pension
funds invest around 17% domestically. They target an equity allocation of
around 40%, whereas the rest is for a large part invested in bonds. The share invested in Dutch mortgages is far lower than the share
invested in the Dutch sovereign despite interest rates being much higher for
the former. The age profile of their members and the still dominant presence of
defined-benefit contracts could be factors influencing this allocation of
capital. 
Investment
decisions of households have also been influenced by economic policy. Households mainly invest in dwellings, which many governments have
supported by targeted policy measures. The most important of such measures in
the Netherlands is the tax-deductibility of mortgage interests. From the
mid-1990s, this triggered a credit-led boom in the housing market that regained
momentum in the early years of the 2000s (Graph 2.2.10). The continuous rise in house prices
was reversed in 2009 by the financial crisis and led to a considerable decline
in investment in dwellings and other buildings. The medium-term outlook for the
housing market is more benign; prices and the number of transactions are
increasing again (see Section 2.3) and can be expected to result in families
investing more in their housing.
 Graph 2.2.8:   Investment by type 
 Source: Statistics Netherlands 
The design of the institutional
framework of the pension system has implications on economy-wide saving and
investment patterns. Aligning pension contributions
with entitlements by reducing premiums for the younger generations could impact
on the deleveraging of households or support domestic demand. Positive effects
can be expected from the current gradual changeover from a defined-benefit to a
defined-contribution system that makes it more attractive for pension funds to
invest in (domestic) equity, potentially stimulating domestic demand.
Banks and
insurance companies
The Dutch banking sector is large, with
total assets of almost five times GDP. Although the
sector is smaller than that of the UK, it is much larger than that of Germany
and has a high degree of concentration. Dutch banks hold relatively large
mortgage portfolios, amounting to around 90 % of GDP, double the average of the
euro area. As domestic deposits do not match the mortgage portfolio, Dutch
banks have a sizeable funding gap. As new mortgages take the form of linear or
annuity mortgages and the maximum loan-to-value ratio is being reduced
stepwise, the funding gap should gradually decrease in the coming years. 
Non-financial
corporations
Savings of non-financial corporations
(NFCs) have constantly been higher than their investments. The excess of gross corporate saving over domestic investment has
widened since the late 1990s and is the result of the decline in their
investments and, more importantly, a sharp increase in their savings (Graph 2.2.11). The difference between savings and
investments is the funding that corporations provide to other sectors. In the
case of multinational companies this can also mean subsidiaries abroad. Profits
that subsidiaries make and keep for their use, the so-called reinvested
earnings, also constitute such intercompany lending. Therefore, when looking at
the net lending capacity of NFCs in the Netherlands, income that is transferred
or earned abroad in conjunction with inflows and outflows of direct investments
has to be taken into account. 
 Graph 2.2.9:   Savings and domestic investment of non-financial corporations (in % of GDP) 
 Source: European Commission (Eurostat) 
NFCs in the Netherlands distribute only
a small share of their profits, which largely explains the high savings of the
sector. Table 2.2.1 shows how the net operating surplus
and net lending of NFCs are determined in the Netherlands and compares these
figures, as an example, with Germany (which also has a sizeable current account
surplus but of a very different nature). The difference in net lending of NFCs
is mainly driven by the fact that Dutch companies pay out a much smaller share
of profits to their shareholders. The phenomenon of earnings retention is
largely concentrated in multinationals. The effect is particularly significant
for the Netherlands because shares of Dutch companies that are foreign-owned
amounted to 55% of GDP in 2011 compared to only 22 % in Belgium and 20 % in
Germany. Higher dividend payments could imply a lower current account surplus. 
 Table 2.2.1:     Net lending by non-financial corporations in 2013 (as a percentage of GDP) 
 Source:  European Commission (Eurostat) 
Savings from domestic operations and
investment of non-financial corporations have been relatively stable and more
balanced than net lending suggests (Graph 2.2.12). Gross capital formation of Dutch
corporations has been relatively stable since 1995 at around 10 % of GDP. The
(relatively small) volatility seems to follow the economic cycle. Graph 2.2.12 depicts how domestic savings (defined
as gross savings excluding net foreign income) compare to domestic investments
by Dutch NFCs. There is still a saving surplus but it is much smaller than when
foreign operations are also considered. One important reason is that
international investments and profits have become more significant over the
years. 
 Graph 2.2.10: Domestic savings and investment of non-financial corporations 
 Source: Statistics Netherlands and European Commission Calculation 
 Graph 2.2.11: Net FDI outflow and net foreign saving of non-financial corporations 
 Source: Statistics Netherlands, International direct investment database (OECD) and European Commission Calculation 
 Box 2.2.1: Balance Sheets of Non-Financial Corporations The increasing savings of non-financial corporations also reflect a continuous improvement in their balance sheets. Negative shocks, such as the burst of the dot.com bubble and the Great Recession, have prompted companies to strengthen their equity position. Indeed, since 2002 the Dutch non-financial corporations (NFC) have embarked on a deleveraging process in which large corporations([1]) have increased their equity share from around 37% of their balance sheet in 2002 to around 45% in 2013. In the same time, small and medium-sized enterprises (SMEs) have raised their equity ratio from under 34% to 41%. The composition of resources has not changed much: larger companies hold 5% of their assets in cash or in other highly liquid form, whereas smaller companies keep around 15% in liquid assets. Over the longer term, however, large companies have gradually replaced their fixed capital and stocks with shares in other companies (domestic or abroad), effectively moving parts of their activities abroad. As a consequence, the capital and stock-intensity of Dutch corporations has decreased, and acquisitions consolidated the sector. In their attempt to strengthen their balance sheets, Dutch non-financial corporations have also decreased their pay-outs to shareholders. Both developments (reducing liabilities and limiting dividend payments) contribute to the increasing savings of Dutch NFCs.   Graph 1:   Aggregate balance sheets of large NFCs, in % of total balance sheets 
 Due to a revision of accounting standards no data available for 2008 -2011 Source: Statistics Netherlands   
__________________________________________________________________________
      
([1])
                 Non financial
      corporations are defined as "large" if they have a balance
      sheet (at the end of the year) of at least EUR 40 million. The dataset
      excludes companies in real estate.-
 (Continued on the next page) 
 Box (continued) 
 Graph 2:   Aggregate balance sheets for small NFCs, in % of total balance sheets 
 Due to a revision of accounting standards no data available for 2008 -2011  Source: Statistics Netherlands : 
Part of the high share of retained
      earnings by SMEs could be caused by the specific tax treatment of
      director-major shareholders. The Dutch tax
      system entails a specific tax treatment of director-major shareholders (a
      person that holds a significant position in a company and owns a large
      part of the shares). The Netherlands has seen a strong increase in
      entrepreneurship headed by a director-major shareholder. Whereas there
      were 126 000 director-major shareholders in 2001, this number increased
      to 193 000 in 2012.(2) This
      change could be partly explained by tax motivations. An entrepreneur pays
      income taxes to a maximum rate of 52%. However, the profits distributed
      as dividends are taxed at a lower rate (3).
      There is thus a tax incentive for an entrepreneur to set himself up as a
      director-major shareholder and to pay himself the lowest wage allowed. At
      the same time, a director-major shareholder has a tax motivation to
      retain earnings in the company, instead of paying dividends, as the
      former are not subject to wealth taxation while the latter are.
      Consequently, companies with a director-major shareholder pay only a
      quarter of their net earnings in dividends.(4) If director-major shareholder
      companies had the same pay-out ratio as companies without a
      director/majority shareholder, their annual savings would be lower by approximately
      0.5% of GDP.(5) A director-major
      shareholder may also reduce corporate income tax obligations by
      dedicating part of the company's cash reserve for his future pensions.
      These pension savings show up as corporate savings in the national
      accounts even though they are earmarked as pension savings for the
      entrepreneur. 
____________________________________________________________________________
      
(2)  CBS, Achtergrondkenmerken en
      ontwikkelingen van zzp’ers in Nederland, 2014.
(3)  Dividends are first taxed under the corporate
      income tax regime (20% up to 200.000 euros and 25% above) and
      subsequently as income from material interest under the personal income
      tax regime (22% up to 250.000 euros and 25% above).
(4)  Van
      Dijkhuizen, Naar een activerender belastingstelsels, Eindrapport
      Commissie inkomstenbelasting, June 2013.
(5)  
      Ibid.
The saving surplus of the Dutch NFC
sector is increasingly driven by the foreign investments of multinationals. Foreign direct investments generate income that accrues to the
Dutch mother company irrespective of whether or not this profit is effectively
repatriated. These foreign investments have been sizeable and the profits they
generated by these investments have increased substantially (Graph 2.2.13). The large outflow of capital is
mainly caused by a few very large multinationals. The Netherlands hosts a
number of multinationals that are active in capital-intensive industries and,
due to the nature of their businesses, have limited investment opportunities in
the Netherlands. These companies invest large amounts abroad and are the
recipients of almost all foreign income (around two thirds of the income
account can be attributed to 10 multinationals).([20]) 
Since the turn of the century, the
Netherlands has experienced two remarkable decreases in gross fixed capital
formation: after 2000 and after the start of the crisis in 2008. As can be seen in Graph 2.2.14, investment has declined since 2008.
The drop in the investment rate was caused by a decline in corporate investment
in the early 2000s and a decline in households' investments since the onset of
the crisis (Graph 2.2.3). Several factors might have
contributed to the first fall in the fixed investment-to-GDP ratio after 2000.
Almost half of the drop in nominal investment can be explained by price
effects; but technology also shifted towards using cheaper investment goods,
raising their share in investments.([21]) The fall in housing investment after the crisis is related to the
declining housing market and construction sector (low investment in dwellings).
 Graph 2.2.13: Gross Fixed Capital Formation - Total Economy, current prices 
 Source: European Commission (Eurostat) 
Overall, saving and investment decisions
lead to a strong net lending position of the Dutch economy. The net lending position stems from the regulatory framework and
the tax system that drive household saving and investment decisions and the
internationalisation of multinationals that increases their financial
interdependence with other countries.
Developments in household indebtedness
Private sector debt as a percentage of
GDP peaked in Q2 2010 at 234.1 % of GDP and has since been decreasing very
gradually, to 227.9 % in Q3 2014. In the two decades
prior to 2012, regulatory settings and taxation incentives led to the build-up
of a very high level of household gross debt, as well as strong increases in
house prices and mortgage lending. However, since 2012 leverage ratios
(debt-to-GDP ratios) have slightly decreased (Graph 2.3.1), partly as a result of voluntary
repayments becoming more commong. Overall, no significant negative
repercussions from the high household debt level have emerged. As long as
household debt has not reached a steady level, i.e. as long as deleveraging
continues, the household saving rate will remain high, consequently restraining
domestic demand. As a result of policy actions, household gross debt is
expected to decrease gradually but ultimately substantially.
 Graph 2.3.1:   Breakdown of y-o-y changes in debt-to-GDP ratios, households 
 Based on ESA 95 Source: European Commission (Eurostat) 
Several factors contributed to the
build-up of household debt in past decades. In
particular, the taxation system encouraged households to take out higher loans
in order to take full advantage of uncapped mortgage interest deductibility. As
a consequence, mortgage lending increased rapidly, especially in the 1990s. At
the same time, lending standards were relaxed and loan-to-value (LTV) ratios
surpassed 100 % (Graph 2.3.2). Rigidities in housing supply pushed
up house prices that, in turn, increased the average loan amount. The National
Mortgage Guarantee ([22]) (NHG)
provided further incentives for banks and households to maintain high mortgage
debt levels, as the risk of default was partly transferred to the guarantee
scheme. Changing patterns of household behaviour such as increased
participation rates in the labour market and changes in financing conditions
(in particular, lower interest rates), maintained the upward trends in house
prices and mortgage lending. As a result, almost 45 % of Dutch households held
debt in 2008/2009, one of the highest shares in the euro area.([23])
 Graph 2.3.2:   Loan-to-value ratios of homeowners 
 Source: Statistics Netherlands 
Declining house
prices in the aftermath of the global crisis have led to a rapid deterioration
in the net wealth position of Dutch households. In
particular first-time buyers, concentrated in the 25-35 age group, often face a
situation of negative housing equity, meaning that the market value of their
home is below the outstanding balance on the loan (Graph 2.3.3). It is estimated that around 35% of
all homeowners have negative housing equity.([24]) The high loan-to-value ratios (above 100 % at inception) explain
how falling house prices have led to widespread negative housing equity.
Potential negative effects on the banking sector are however smaller than these
numbers suggest, as about half of the mortgage sum of 'underwater loans'
(outstanding loans that exceed the current value of the house) is covered by
the NHG.
 Graph 2.3.3:   Negative equity by age, 2014 
 Source: Statistics Netherlands 
 Graph 2.3.4:   Loan-to-value ratios of homeowners 
 Source: Statistics Netherlands 
Low interest rates provide households an
incentive to advance the repayment of their mortgages. Many households not only have the legal and contractual possibility
to accelerate mortgage repayment, but they also have a strong fiscal incentive.
Deposits on savings account are (above a threshold of around EUR 20 000) taxed
at a fixed rate of 1.2 %, regardless of the interest payments actually
received. In a low interest rate environment, many households have a strong
incentive to amortise their mortgage, as the reduction of the tax burden on
their savings outweighs the reduced benefit from the lower mortgage interest
deductibility. Moreover, reducing the outstanding mortgage loan below the value
of the home enables the owner to transfer the mortgage to a new home, reducing
obstacles to mobility (many banks are reluctant to refinance realised losses on
home sales).
'Underwater mortgages' are more common
among high-income households. The highest average
LTV ratio can be found in the highest income quartile (Graph 2.3.6) and the lowest income quartile has
the lowest share of 'underwater mortgages' (Graph 2.3.5), which mitigates the risk of default.
There are two important reasons for this. Lower-income households typically
bought smaller and less expensive houses and these usually suffered from a
smaller drop in price than the more expensive dwellings since 2008.
Lower-income groups are also more constrained by ceilings for the
loan-to-income ratio that often prevent them from getting high LTV ratios.
 Graph 2.3.5:   Mortgages under water per iIncome quartile 
 Source: Statistics Netherlands 
 Graph 2.3.6:   Average LTV per income quartile 
 Source: Statistics Netherlands 
From an aggregate perspective, risks of
default are also mitigated by the strong overall net asset position of Dutch
households. Much of the build-up in mortgage debt
has been mirrored by even steeper increases in total household wealth and, even
though the latter is often illiquid (such as pension and housing assets, see
Section 2.2), households also have, on average, some liquid asset buffers for
absorbing direct income loss. Compared to total household gross debt of around
230 % of GDP, liquid assets amounted to around 60 % of GDP in 2013 (97 % of GDP
when including equity and investment fund shares) ([25]). However, net household assets and pension claims are distributed
unevenly and younger households usually have lower net (liquid and total)
assets. Still, relatively few households face acute financial problems, thanks
mainly to very strict legal protection of creditors (giving a strong incentive
not to default on mortgage loans), legally-binding loan-to-income ratios and
high repayment rates among young households (Graph 2.3.7). As a result, the non-performing
share of the mortgage portfolio has been low and stable, increasing from 2.4 %
in 2010 to only 2.6 % in the first half of 2014 (Graph 2.3.8), and the share of financially
vulnerable households is one of the lowest in the euro area.([26])
 Graph 2.3.7:   Mortgage risk by age group 
 Source: De Nederlandsche Bankd 
 Graph 2.3.8:   Non-performing loans 
 Source: ECB Statistical Data Warehouse 
In light of these limited risks to the
household sector, potential risks to other sectors are contained. In particular, a very low share of non-performing loans, some
liquid buffers and a government-backed mortgage guarantee scheme that covers
half of 'underwater mortgages' indicate that risks to the banking sector are
contained. Even if some downside risks were to materialise, the financial
sector is in a healthy position and is likely to be able to withstand a
worsening in the riskiness of the mortgage portfolio. This is reflected in the
most recent 'stress tests' of the ECB and the current profitability of the
banking sector (Graph 2.3.9).
 Graph 2.3.9:   Return on assets and equity of banks 
 Source: ECB Statistical Data Warehouse 
Housing market developments
Developments in the housing market are
important for assessing the ramifications of a high debt level for the economy. The high level of household debt could have negative macroeconomic
consequences if households were unable to repay their mortgages on a large
scale and, at the same time, the value of their homes was below the value of
the outstanding mortgage. This shows the importance of the housing market in
the assessment of the potential macroeconomic risks associated with household
debt. 
There are signs of recovery in the Dutch
housing market. House prices peaked in August 2008
and then dropped until June 2013. Since then, a moderate upturn is visible:
prices have increased by 3 % since June 2013 (Graph 2.3.10) but, by the end of 2014, house
prices were still 19 % below their peak. With the fall in prices, fewer
transactions took place. Since mid-2013, the number of transactions has
increased, indicating smoother functioning of the market. Stabilisation of the
housing market can also be seen from the increase in the number of building
permits (Graph 2.3.11) in 2013 and the fact that rents are
rising at a substantial pace (by 4.7 % in 2013 and 4.4 % in 2014). All these
factors point to slightly higher house prices in the near future, reducing
risks to the household and financial sectors.
 Graph 2.3.10: Evolution of house prices (lhs, 2010 = 100) and number of transactions 
 Source: Statistics Netherlands 
 Graph 2.3.11: Residential building permits, pricee peak and through 
 Source: Statistics Netherlands 
 Box 2.3.1: Social Housing The rental market in the Netherlands is not functioning properly. Fiscal subsidies for debt-financed house purchases and lower recurrent taxation of owner-occupied housing compared to rental housing means that rents outside the social housing segment are high and supply is small. Moreover, the lower end of the market is dominated by a large social housing segment which in effect crowds out the private rental market. Even though social housing corporations own a third of the housing stock, waiting lists are long because many dwellings are occupied by higher-income households (which, based on their current income, would no longer be eligible for social housing). This not only diminishes the effectiveness of social housing as a policy tool to reduce poverty but also impedes labour mobility of people with lower incomes, negatively affecting their employment prospects. Given the already large housing stock owned by the social housing corporations, the problem of the waiting lists is not one of insufficient supply but of excessive demand. The government is trying to re-focus social housing policies. The government has put forward policy measures to reduce the long waiting lists by encouraging higher-income households to move by means of income-dependent rent increases. This measure, however, is likely to be ineffective as rent increases are relatively modest, even after taking into account the tenant's income. For that reason, the government is investigating to what extent the value of the dwelling can be incorporated more prominently in the rent. Such an approach could help develop a rental market that is more responsive to housing market developments and could provide incentives for tenants, if they can afford to do so, to move to more expensive homes. This in turn may help increase the size and improve the functioning of the currently undersized commercial rental market. Another measure has been proposed to refocus social housing corporations ('Herzieningswet Volkshuisvesting', adopted by the second chamber of Parliament on 11 December 2014). Under the proposed law, housing corporations would have to choose between either splitting up into two legal entities or having separate accounting sheets for activities of general economic interest (i.e. social housing) and any other activity (this obligation to have an administrative split/separate accounting also follows from the 2009 Commission Decision on State aid to Dutch Social Housing). This could reduce market distortions by eliminating cross-financing of other activities through social housing revenues. It remains to be seen if this can be achieved through separated balance sheets. If social housing corporations were to sell more non-social housing dwellings, this would simulate the emergency of a functioning commercial rental market and the social housing corporations could improve their support for low-income households.   
 Box 2.3.2: Long-Term Scenarios on Private Sector Debt The implemented shift from interest-only to annuity mortgages will ultimately lead to a very sizeable decline in gross private sector debt. Under plausible assumptions about future economic growth, house prices and transactions, scenarios can be sketched of how the private sector debt ratio (as % of GDP) is likely to develop under the new tax regime that triggered the shift from interest-only to annuity mortgages.([1]) Graph 1 summarises the results of this analysis. Historical data are used until 2013 with two alternative subsequent scenarios after 2013. The first scenario is the no-policy-change benchmark, i.e. assuming that the government had not implemented the new tax regime. In this scenario, private debt would have continued to rise in the next decades and stabilise at around 280% of GDP. The second scenario is one which takes the new tax regime into account. In this case, the private debt ratio is expected to decrease to around 190% of GDP in 2040. In the short term, old and small mortgages are replaced by larger mortgages (even though house prices recently decreased, they are still much higher in nominal terms than 30 years ago), resulting in a temporary increase of the ratio. In the medium term, the “annuity effect” dominates and the private debt ratio decreases significantly. The baseline scenario is not very sensitive to changes in the underlying assumptions. Different assumptions concerning economic growth or house prices do not change the main result that household debt is set to decline substantially due to the policy changes implemented in 2013 (see for example Graph 2). Households' savings will be pushed up by the reform but the macroeconomic effects are expected to be positive. In the medium term this deleveraging will negatively impact domestic demand through temporarily heightened savings rates and will put upward pressure on the current account surplus. The long-run general equilibrium effects are more difficult to forecast. Additional savings in the banking sector will improve financial stability and free up capital for lending to more productive activities than housing. Graph 1:   Private Sector Debt - Baseline scenario || Graph 2:        Alternative policy change scenario 
 || 
     Source: European Commission Calculations || Different scenarios regarding nominal house price developments Source: European Commission Calculations 
___________________________________________________________________________________
([1])            Both scenarios assume constant nominal GDP growth
      (3.5%), constant ratios of private household debt (non-mortgages) to GDP,
      a constant number of transactions (average 1995-2011), a constant LTV
      ratio of 1 and house prices that develop in line with nominal GDP.
Policy measures 
Since 2012, the government has taken a
series of policy initiatives that are reshaping the Dutch housing market
substantially. The most significant legislative
change relates to the eligibility for mortgage interest deductibility. New
mortgages initiated from 2013 onwards must take an annuity or linear form in
order for interest to be tax-deductible and to qualify for an NHG guarantee,
and they have to be amortised over a maximum of 30 years. As a result,
non-amortising mortgage loans have virtually disappeared from the market.
Another aspect of the change in the tax treatment of housing finance relates to
the very gradual reduction in the maximum deductible rate. The regulatory
ceiling for the loan-to-value (LTV) ratio is gradually being lowered to 100 % by
2018. This will not translate into substantial problems for first-time buyers
since LTV ratios of new mortgages are currently slightly below 90 %.([27]) Lower LTV ratios will improve the resilience of the financial
sector and will reduce the gross household debt levels. Any further decrease in
the maximum LTV ratios needs to be weighed against the capacity of young
households to save outside the pension system and the functioning of the lower
end of the rental market. Since 2014, NHG mortgages have limited their
guarantee to 90 % of any potential losses and the maximum guarantee is being
tied to the average house price as of 2016. This initiative should encourage
lenders to assess more thoroughly and monitor the risk of their mortgage and
thus limit the risk of default.
Overall, private sector debt has been
decreasing since 2010. It has been put on a further
downward path by policies implemented in recent years and by deleveraging
households and non-financial corporations. As long as deleveraging continues,
the household saving rate will remain high, consequently restraining domestic
demand. So far no significant repercussions from the high household debt level
have emerged and risks are fading.
                                                                                                                             
Taxation
The Netherlands has improved the
financial incentives on labour. Although
incremental amendments have been made to the tax system with a view to
increasing labour participation, a more comprehensive reform of the tax system,
announced in September 2014, is still under discussion. An outline of the
reform is expected to be presented to parliament in summer 2015.
Fiscal disincentives to work are
substantial in the Netherlands. The average tax
burden on labour income in the Netherlands is slightly above the OECD average ([28]). Taxes on personal income and profits are below the OECD average
but social contributions are high ([29]). Compared to other EU Member States, the tax wedge on labour for
low-income earners is low (32.2 % in 2013 for a single person earning 67% of
the average wage, compared to 37.6% on average in the EU). Even though the tax
wedge is relatively low, compulsory non-tax payments are substantial in the
Netherlands. When these are taken into account, the tax wedge for a single
worker without children earning the average wage increases from 36.9% to 51.8%,
the second highest in the EU.([30]) Due to this
high burden and the relatively high benefits, low-wage traps, inactivity traps
and unemployment traps, including for a second member of a couple, are higher
than the EU average, pointing to the existence of financial disincentives to
work. ([31])  
Measures have been taken to strengthen
financial incentives to work. The in-work tax
credit will be gradually increased for lower incomes from 2014 until 2017,
which can have a positive effect on disposable income, strengthening incentives
to take up work. In addition, tax arrangements for people with (young) children
have been adjusted in order to provide a stronger incentive to either enter the
labour market or work more hours. However, no figures are available on the
impact these measures will have on employment or hours worked.
Lower taxes on labour could be
compensated by higher taxes (or lower expenditure) elsewhere. Least detrimental to growth would be increases in property
environmental or consumption taxes.  Property taxation could be increased
for instance by a quicker phasing out of mortgage interest deductibility or
higher taxes on social housing corporations. A recent study suggests that there
is a potential for additional environmental taxes([32]), e.g. by increasing the water abstraction tax, the level of cost
recovery under the provision of water services and reintroducing the passenger
aviation tax. Taxes on consumption could be raised by broadening the tax base
of the standard VAT rate or by increasing the reduced rate.
The employment effects of changes to the
tax and benefit system depend on household characteristics. According to a study by the Netherlands Bureau for Economic Policy
Analysis (CPB) ([33]), effects of
tax-benefit reforms in terms of participation depend greatly on demographic
factors and the composition of the household (children or no children, single
parents or couples). Furthermore, although tax-benefit reforms influence
considerably the decision to participate, they hardly influence the decision to
work more hours. The study concludes that there are only marginal effects from
adjusting marginal tax rates. Larger employment effects can be expected by
implementing targeted reforms in the field of the in-work tax credit or by
reducing benefits.
Long-term sustainability
With important long-term care and
pension reforms, the Netherlands aims to address its medium-term fiscal sustainability
risks. Government debt is currently above the 60 %
of GDP Treaty threshold (68.6 % of GDP in 2013 and expected to increase
slightly until 2016). Ageing-related costs are expected to put upward pressure
on public debt, in particular over a horizon of a few decades. The Netherlands
appears to face some fiscal sustainability risks in the medium-term. These
risks are projected to persist in the long term, primarily due to the projected
ageing–related costs, in particular in the field of long-term care. Even
though several reforms have been implemented over the last few years that
potentially curb the costs related to ageing, it might still be appropriate for
the Netherlands further limit the impact of age-related expenditure on the
sustainability of public finances in the long term.
A comparatively large part of Dutch GDP
is spent on providing pensions. In this regard, the
Netherlands has taken steps to reform the publicly and privately funded pillars
of the pension system and the long-term care system. In addition to gradually
increasing the first-pillar statutory retirement age from 65 in 2012 to 67 in
2023 ([34]) and a
related lowering of the maximum tax-exempt accrual rate, new rules on
indexation and financial buffers (financial assessment framework) were adopted
by the parliament. Financial supervision of the pension funds has been improved
and made more rigorous. Better use will also be made of buffers in order to
cope with financial shocks, which should reduce the system’s pro-cyclicality.
If pensions need to be adjusted following financial shocks, the Central Bank
will assess how the pension funds have taken inter-generational effects into
account in order to ensure inter- and intra-generational fairness in pension
contracts. Following the debate among the social partners which took place in
2014, the government is expected to introduce proposals for the future of the
pension system before the summer of 2015.
Some parts of long-term care responsibilities
have been shifted to municipalities and health insurance companies. With the implementation of the Social Support Act and the Youth
Act, responsibilities for long-term care are partly transferred to
municipalities and health insurance companies. The aim of the decentralisation
is to achieve efficiency gains and to provide tailor-made support. The number
of people receiving intramural care is reduced, and some new clients will
receive care at home. At the same time the municipal budget for care will
decrease substantially, as the government expects the importance of informal
care to increase. It remains to be seen whether the municipalities will manage
to develop the necessary expertise in order to be able to offer accessible and
affordable long-term care, especially in view of a pressing time schedule for
implementation and fewer resources available. The government has committed
itself to closely monitoring the implementation of the reform, elements of
which still need to be specified and adopted, and has stated that it would
provide additional support to the municipalities if needed.
Fiscal framework
The Netherlands has a robust fiscal
framework. The main characteristics of the
multi-annual trend-based fiscal framework currently in place are: (i)
the use of real (i.e. inflation-adjusted) expenditure ceilings, which are
predetermined and apply to the government’s entire term of office; (ii) the use
of automatic stabilisers on the revenue side and (iii) the use of independently
derived macroeconomic assumptions. When a new central government is formed, yearly
budgetary targets for general government expenditure and the tax burden are set
for its term in office. Parliament has approved legislation (Wet Houdbare
Overheidsfinanciën) for transposing provisions of the Council Directive
2011/85 on requirements for national budgetary frameworks and the Fiscal
Compact (which entered into force on 1 January 2014).([35]) In particular, a division of the Council of State has been
mandated to monitor compliance with the structural budget balance rule, which
was also introduced by the new law. However, the mandate appears limited in
terms of assessments in relation to the operation of the rule and its
correction mechanism and, in addition, the organisation arrangements within the
Council of State in terms of staff and decision-making are not spelled out at
this stage. The ‘comply-or-explain’ principle is not formalised, although there
is an established practice for the government to react to the Council of
State’s opinions. The new Dutch legislation also covers provisions and
coordination mechanisms for local government finances to improve their
monitoring by the central government. The decentralisation of a large number of
tasks from central to local governments from January 2015, which includes
substantial expenditure cuts, will put to the test the new provisions on
monitoring public finances across different levels of government.
The economic crisis and ensuing fiscal
repercussions have exposed weaknesses in the fiscal framework, as a result of
which the original targets that were set had to be adjusted several times. Since the onset of the crisis successive governments amended their
medium-term budgetary plans with wide-ranging additional consolidation
measures, partly because initial expenditure ceilings were based on growth
paths which turned out to be overly optimistic. Under the current government’s
coalition agreement, automatic stabilisers are free to operate within each of
the separate expenditure sub-ceilings for ‘core’ central government, social
security and healthcare, as long as the country’s overall fiscal position stays
in line with the relevant Country Specific Recommendations. As regards national
budgetary rules, interest expenditure is excluded from the overall expenditure
ceiling, whereas expenditure items sensitive to the cycle (unemployment and
social welfare benefits, for example) are kept within the overall expenditure
ceiling. This could prevent automatic stabilisers from working fully in an
economic downturn. ([36])
Long into
the financial crisis, the Dutch labour market held up well. In the years before the onset of the financial crisis the
Netherlands experienced very low unemployment figures (Graph 3.2.1). Even after the crisis hit in 2008,
unemployment increased with a delay as employers engaged in labour hoarding,
with labour productivity absorbing the loss in domestic production. ([37]) As the crisis endured, however, the level of unemployment started
to increase substantially in 2013 peaking in February 2014 and slowly
recovering afterwards. The unemployment rate reached 6.7% in December 2014 (EU
average of 9.9%). Following the most recent Commission forecast, the moderate
recovery of labour market conditions is set to continue in the coming years.
Increasing labour market participation
Ensuring a high supply of labour in the
long term remains an issue for the Dutch economy in view of an ageing
population (([38]). While the employment rate (20-64 age group), at 76.3% in the third
quarter of 2014 is well above the EU average of 69.8%, addressing the
participation of the groups “further away” from the labour market - including
second income earners (often women), people with a migrant background, people
with disabilities, young people, older workers and long-term unemployed - is
necessary in order to reach the national target of 80% by 2020. 
 Graph 3.2.1:   Labour market indicators 
 Source: European Commission (Eurostat: Labour Force Survey) 
Female employment in the Netherlands is
predominantly part-time. While the female
employment rate of 70.9% in the third quarter of 2014 is above the EU average,
it is far less favourable expressed in full-time equivalents (48.1% in 2013).
The Netherlands continues to have the highest proportion of women in part-time
employment in the EU (77.2% in 2013). Part-time work is largely voluntary, as
only 4.3% of part-time workers would like to work more hours ([39]) (whereas in all other Member States this figure is much higher).
Yet, part-time work can affect the financial independence of women, leading to
a high gender pay gap (16.9% in 2012) and a high gender pensions gap later on
in life. Measures improving the affordability of formal childcare could have a
positive influence on the choice of women to enter the labour market or to work
more hours.
Labour market outcomes of non-EU
nationals tend to be weaker along all dimensions. The
Dutch labour market does not seem to be very accessible to immigrants. These
groups have poorer employment outcomes resulting in relatively high (long-term)
unemployment rates and one of the highest employment gaps in the EU.([40]) The skills of non-EU nationals residing in the Netherlands are
under-used, as evidence shows that many immigrants are over-qualified for the
jobs they do.([41]) Part of
this problem might be caused by the strict rules on diploma recognition in the
Netherlands, whereas also labour market discrimination might play a role ([42])
The employment rate of people with a
disability in the Netherlands is below the European average.([43]) Furthermore, the employment gap (2011)
between people with disabilities and people without disabilities in the
Netherlands is over 37 percentage points, the highest gap in the EU.
Although the overall unemployment rate
has shown a decrease in 2014, long-term
unemployment is on the rise. While the overall unemployment rate has shown
a decrease in 2014, long-term unemployment is stable at 2.8% in the first half
of 2014. In relative terms, the share of long-term unemployment in total
unemployment rose from 21.6% in the last quarter of 2009 to 40.4% in the third
quarter of 2014. On the contrary, youth unemployment and NEET (people not in
employment, education or training) rates in the Netherlands are fairly low([44]), although both rates have shown increases in the last three years.
A specific issue is related to the high youth unemployment rate for those born
outside the EU27.
Older workers' participation is
increasing, also resulting from recent pension reforms. The employment rate of older workers (55-64) has shown a steady
increase from 2010 (53.7%) to 2013 (60.1%) and is still on the rise. This is in
line with the rising effective retirement age in the Netherlands, from 62.8 in
2010 to 64.1 in 2014([45]) and an
extended working life (39.6 years compared with an EU-average of 35 years).
Older workers are at a higher risk of long-term unemployment, as once they lose
their jobs it is difficult for them to re-enter the labour market as the share of
long-term unemployment among older workers is far higher than for other age
groups. 
The incidence of flexible contracts has
increased and the transition rates from temporary employment to permanent
employment are low in the current juncture. In
recent years the number of self-employed and people employed under a temporary
contract have increased (Graph 3.2.2). At 16.5% in 2012, the transition
rate from temporary to permanent contracts is among the lowest in the EU.([46]) The increase in flexible contracts and the low transition to
permanent contracts is often attributed to the assumption that employers’ costs
for hiring people under a permanent contract being higher, due to national
rules in the field of dismissal protection and severance pay, sickness benefits
and social security contributions (which, as concerns occupational funds, do
not have to be paid for the self-employed). 
 Graph 3.2.2:   Permanent, temporary and self-employed workers as a share of total employment 
 Source: European Commission (Eurostat: Labour Force Survey) 
In order to address the challenges
concerning labour market supply, the Netherlands has implemented labour market
reforms. Notably, significant steps have been taken
to stimulate labour market participation, reduce labour market duality and
foster labour mobility. The effects of reforms in these areas will be visible
in the coming years.
Incentives for participation of people
with disabilities are being strengthened, and employment stimulated. The participation act that came into force on 1 January 2015 aims
at improving the labour market participation of people with disabilities by
merging and reforming several benefits schemes.([47]) The Social Assistance Act, which has been incorporated into the
Participation Act as of 1 January 2015, has been amended to focus more on
labour market activation.([48]) The
government has made an additional investment of EUR 35 million to help the 35
Dutch labour market regions in setting up their structures for regional
cooperation (‘werkbedrijven’). At the same time, the government is limiting new
entries into sheltered workshops and is encouraging municipalities to place people
on the regular labour market with a subsidy. However, this entails the risk
that municipalities close sheltered workshops without being able to offer
concrete alternatives.
From the labour demand side, a draft law
which has been sent to parliament sets a quota for employers to hire people
with disabilities. Social partners are committed to
creating 100000 new jobs for this target group in the private sector and 25000
in the public service by 2026. If this obligation is not met the quota law
enters into force, meaning that financial penalties will be imposed on those
enterprises that do not fulfil the quota. An annual evaluation is foreseen. 
The primary set of policy measures to
tackle  youth unemployment and inactivity is articulated in the Youth Guarantee
Implementation Plan.([49]) Additional resources are invested in youth-specific measures such
as the regional Work Experience Grant ('startersbeurs'() and a temporary
premium discount for employers if they employ young workers with a view to
addressing the rising youth unemployment rate.
Active ageing measures are being
implemented to offer support to older workers as their working life extends. Adapted workplaces, innovative shift patterns and (re)training are
among the measures taken. These measures are financed through ‘Sector Plans’,
aimed at creating and retaining jobs within specific sectors and stimulating
inter-sectorial mobility. The government reserved an amount of EUR 600 million
in funding, of which a third is earmarked for older workers. Another third is
earmarked for youth. The 'Sector Plans' have the potential to stimulate the
creation of (dual) jobs and apprenticeships as well as to foster mobility
between sectors.
The comprehensive reform of employment
protection legislation enacted in 2014 aims at reducing labour market duality
and fostering mobility. With the implementation of
the Work Security Act ([50]) the
government is trying to address issues of labour market segmentation by
reducing the obstacles to hiring and firing, encouraging transitions to
permanent contracts and labour mobility. The act enhances the rights of
flexible workers and at the same time decreases severance payments and
simplifies dismissal procedures. It limits the maximum right to unemployment
benefits from 38 months to 24 months ([51]) and lowers the yearly accrual of unemployment benefits rights. In
addition, the government has changed the rules concerning employers’ obligation
to pay wages for a maximum of two additional years when an employee falls ill.
Although this reduces differences between permanent and temporary workers, the
financial risks for the employer in the event of an employee falling ill remain
higher for permanent staff. The government is currently examining this issue to
see if further reforms could provide an incentive for employers to hire
permanent staff. 
False self-employment risks distorting
the Dutch labour market ([52]). A study concerning the increase in the number of self-employed is
currently being conducted, with the aim of preventing abuses linked to the
spread of "bogus" self-employed persons with low income and for whom
no social security contributions for occupational funds have to be paid. A new
law tackling false self-employment is under discussion in the parliament and
the fines for social fraud are expected to be raised.([53])
Ensuring effective social protection
Poverty levels are low but increasing in
the Netherlands. As part of the Europe 2020
strategy the Netherlands set a national poverty target of lifting 100000 people
out of low-work intensity households, but the trend shows a marginal rise
compared to the baseline value in 2008.([54]) On other poverty indicators the situation is also good, but with a
negative trend([55]). Income
inequality is lower than the EU average, and has shown a decreasing trend of
declining inequality.([56]) The highest
risk of poverty in the Netherlands is seen for children, non-EU nationals,
people receiving social assistance and single parents([57]). In-work poverty (at 4.2%) is significantly lower than the EU
average (8.9%) and is most prevalent among the self-employed (almost half of
the working poor). As the self-employed often pay lower social security
contributions and often have no occupational pension arrangements, they have
lower entitlements to social security benefits in situations of labour
disability, job loss or old age and are therefore more susceptible to risk of
poverty. Recently a special pension fund for self-employed has been
established, which falls under the (more favourable) tax regime of the second
pension pillar, but still many self-employed choose not to be insured this way.
The shift of many responsibilities
related to participation and care to the municipalities has the potential to
lead to more efficient and effective delivery of social protection, but also
carries risks. With the adoption of several acts in
the field of participation and care, many responsibilities have shifted to the
municipalities. The concentration of multiple tasks at municipal level should
be more cost-efficient and enables tailor-made solutions to beneficiaries'
needs. However, there are risks related to a very tight implementation schedule
in combination with a reduction of overall funding. 
 Box 3.2.1: Wage growth and job creation As shown by the analysis of the 2014 In-depth Review, wage developments in the Netherlands have seen little dispersion across sub-sectors. Wage increases in sectors where productivity developments outpaced wage growth could have the potential to positively affect domestic demand, helping to close the current large output gap in the Netherlands. Wage setting in the Netherlands takes place by means of collective agreements at sector and firm level. Social partners play a crucial role in negotiating wage developments, with around 700 collective agreements in the country (covering approximately 80% of the workforce). With a long tradition of social dialogue, social partners share the goal of adapting wage developments to the prevailing cyclical (as well as industry-specific) economic conditions, which are internalised in the wage-setting process. After a phase of slow wage growth in the middle of the crisis, recent developments point at more favourable conditions. While between 2011 and 2013 real compensation per employee grew by a 0.9% on average, real wages have picked up again in 2014, with an estimated increase of 2.5% over that year. This trend reflects the combined effect of contractual wage developments and inflation in recent years. As evident from Graph 1, in a context of rising unemployment, contractually agreed wages have increased significantly less than inflation since the beginning of 2010, hovering around 1% on average. However, this trend seems to have reversed since the end of 2013, when contractual wages started rising on average more than consumer prices. This trend has the potential to sustain real wage growth, contributing to an increase in disposable income and internal demand. Graph 1:   Contractual wage increases, inflation (HICP) and unemployment rate 
 Source: Statistics Netherlands 
In the medium term, real wages that grow broadly
      in line with labour productivity could support domestic demand without
      harming competitiveness. Since 2008, both nominal and real unit labour
      costs have been on the rise, also owing to cyclical factors (given the
      fall in labour productivity during recession phases). While this trend is
      overall consistent with sustaining labour income and domestic demand,
      continued growth of unit labour costs in the longer run might lead to
      pressures on the side of labour costs. A high tax wedge, in particular on
      lower incomes, can make this
      issue more relevant by compressing households' disposable income while
      weighing on labour costs, thus potentially limiting job creation.
The ratio of general government
expenditure on education over GDP is expected to remain constant for the coming
years ([58]). Annual expenditure per student in public and private institutions
for each educational category is above the EU average. An additional EUR 650
million is earmarked for quality improvement at all levels of education,
research and innovation in 2015. Yearly investments of EUR 600 million are also
foreseen for the years 2016 to 2019 ([59]) to be used in areas such as preventing students from repeating
school years, appropriate teaching methods, better quality for technical
vocational education and the internationalisation of higher education. As of
August 2014, schools must provide adapted education for pupils who need extra
support (‘passend onderwijs’). The implementation of this reform has
started, but the details of inclusive education measures are still being worked
out. 
The current, partly grant-based, system
for students in tertiary education will be replaced. As of September 2015 students may take out low-interest loans from
the government to finance their studies. Repayment of these loans will depend
on the students’ income after graduation. The loan system includes special
measures for students from low-income families. Savings gained from this
measure are to be re-invested in (particularly the quality of) education. This
might have an impact on tertiary enrolment, especially for students from
underprivileged backgrounds. 
PISA results have shown a declining
trend, but scores are still above the EU average.([60]) Furthermore, adults
in the Netherlands have above-average proficiency in literacy, numeracy and
problem solving in technology-rich environments compared to other countries.([61])
In secondary education, there are
teacher shortages in languages, maths and science in an ageing teaching
population. 70% of Dutch school heads report that
quality of education is negatively affected by shortages of qualified or
capable teachers ([62]). In order
to reduce the shortage, the government has introduced more flexibility in
teacher training and extra coaching to prevent teachers from dropping out.
In 2014, several initiatives were taken
to better match vocational education and training to the needs of the regional
labour markets.  Focus is placed on the general
improvement of the quality of education, on the incentives for employers to
provide more and better quality internships and on more opportunities for
students’ personal development including more attention
to avoiding drop-outs. Increasing the amount of
work-based learning remains a particular challenge.
The Dutch economy needs a highly-skilled
and adaptive workforce to maintain its competitiveness. Although there is a relatively low level of skills mismatches in
the Netherlands ([63]), a shortage
of information and communication technology professionals hampers the potential
of the digital economy for growth and jobs. The Netherlands addresses this gap
with a range of programmes ([64]) that seek
to better align education with the labour market. Further efforts to reduce
skill shortages are needed to meet the growing demand and to increase the
competitiveness of the Dutch economy.
Research, innovation and enterprise policy
A key challenge for the Netherlands is
to better leverage its science base of excellent quality into a more
innovation-intensive economy. The ‘Top sectors’
approach aims to address this challenge by enhancing science-business
cooperation complemented by wider use of indirect support to research and
innovation activities through general instruments such as tax incentives and an
innovation fund supporting entrepreneurship (Innovatiefonds MKB+).
Nevertheless, given the high potential of the Netherlands in this area, additional
efforts are required to foster the creation, development and growth of
knowledge-intensive innovative firms.
A strong publicly-funded base in both
fundamental and applied research must be preserved in order to support private-sector
innovation. Yet public R&D intensity in the
Netherlands, at 0.84 % in 2013, is lower than in most of the Member States with
similar levels of economic development (Denmark, Sweden, Germany, Austria),
which have continued to raise their support for public research in recent
years, while the Netherlands slipped from holding fourth position in terms of
public R&D intensity in the EU in 2011 to eighth place in 2013. Despite the
budgetary increases decided in 2014 in favour of the Netherlands Organisation
for Scientific Research ()and of university research, the overall level of
public support to R&D is expected to decline over the period 2013-2019: for
this period, direct support for R&D is expected to decrease by 6% and
indirect support though fiscal instruments by 7% ([65]). 
SMEs are an important driver of the
economy in terms of value added and employment.
They account for 67.3 % of all employees and create 61.6 % of added value,
which slightly exceeds the total EU shares The average balance of registrations
and liquidations has been at more or less zero between 2010 and 2013, leading
to a number of SMEs fluctuating constantly around 800 000). The number of
start-ups has been rising since 2003 from around 60 000 to 150 263
registrations in 2013. To some extent, this might be due to favourable start-up
conditions. However, the increase in one-person companies (self-employed) from
55 to 66 percent of new businesses between 2007 and 2012 was also a big driver
of this development. Despite recent improvement in the take-up of innovation
support by SMEs and the overall focus on market-based innovation, the large
majority of Dutch SMEs seem to be unable to benefit from support, because they
are not active in the five priority areas defined for innovation. Improving the
resource efficiency framework targeted at SMEs, could already lead to cost
saving as large as EUR 3.6 billion in a small number of sectors, with a high
projected impact on competitiveness ([66]).
Access to finance remains a problem for
some SMEs, but overall the negative impact seems limited In 2014, bank loan refusals were at 43%, more than double the EU
average of 17%.([67])  However,
SME demand for credit is low compared to other Member States and originates
largely from companies in poor financial shape. The government has created a
complementary fund for high-risk capital mobilising institutional investors
(Nederlandse Investeringsinstelling (NLII)) and adopted measures to reduce SME
dependency on bank financing, including a programme providing support to obtain
bank credits (MKB-Go), an action plan to strengthen the equity base of SMEs, an
increase in the ceiling of the micro-financing instrument (Qredits) and
additional means to supply SME finance. The government now partly finances
platforms for crowd-funding. The government is at the same time following
through on the decision to reduce guarantees drastically by 2015. 
Emissions, renewable energy and congestion
By 2020, in accordance with the Effort
Sharing Decision (ESD), the Netherlands needs to decrease emissions not covered
by the EU Emissions Trading Scheme (ETS) by 16% compared to 2005 levels. According to the latest national projections based on existing
measures, non-ETS emissions will decrease by 15% between 2005 and 2020, leading
to a shortfall of one percentage point. 
The share of renewable energy in the
production of energy in the Netherlands was just 4.5 % in 2012, far from its EU
target of 14 % in 2020.([68]) The Netherlands is also not on track for meeting its indicative
energy efficiency target of 60.7 Mtoe in primary energy consumption by 2020. On
6 September 2013, the national government, local government and stakeholders
signed a legally non-binding Energy Agreement for Sustainable Growth,
which commits the parties to work towards meeting EU and national targets on
energy efficiency and renewable energy deployment. Increased investment in
renewable energies seems to be needed to reach the 2020 target. According to
the National Energy Outlook, the expected size of public budgetary support is
not a limiting factor for meeting the renewables and energy efficiency targets,
but rather the conditions for mobilising investment from the private sector
need improvement, in particular from a regulatory and policy clarity
perspective.
Compared to the EU average, congestion constitutes
a problem in the Netherlands. This holds true both
inside the agglomeration as well as on essential interurban links. Whereas the
downturn and recent infrastructure developments have significantly improved
traffic flows, no complementary measures such as dynamic road pricing schemes
have been taken. The Netherlands is still confronted with significant
congestion. ([69])
Modernisation of public administration
The public administration of the
Netherlands generally performs well. Overall, the
government was very active in 2013-2014 in further improving the business
environment. Significant investments have been made in online accessibility and
cutting red tape. The impact assessment system is comprehensive and is
monitored by an advisory body (AFSCA), but it is complex, not systematically
applied to all policy options and consultation of stakeholders is not
mandatory. 
At least since 2011, the Netherlands has
had one of the lowest EU publication rates for public procurement contracts
advertised at EU level. The share of public
contracts for works, goods and services published by the Dutch authorities and
entities under EU procurement legislation was only 7.6 % of their total
expenditure (excl. utilities) on these contracts in 2013. This is well below
the EU average of 19.1 % and the second lowest in the EU. Increasing this rate
might bring economic benefits.
 2014 Commitments || Summary Assessment([70]) 
 2014 Country specific recommendations (CSRs) 
 CSR 1 Following the correction of the excessive deficit, reinforce the budgetary measures for 2014 in the light of the emerging gap of 0.5% of GDP based on the Commission services 2014 spring forecast, pointing to a risk of significant deviation relative to the preventive arm of the Stability and Growth Pact requirements. In 2015, significantly strengthen the budgetary strategy to ensure reaching the medium-term objective and maintain it thereafter, and ensure that the debt rule is met in order to keep the general government debt ratio on a sustained downward path. Protect expenditure in areas directly relevant for growth, such as education, innovation and research. ||   The Netherlands has made some progress in addressing CSR 1 of the Council recommendation (this overall assessment of CSR 1 excludes an assessment of compliance with the Stability and Growth Pact).     
 CSR 2 When the economic environment allows, step up efforts to reform the housing market by accelerating the reduction in mortgage interest tax deductibility, by providing for a more market-oriented pricing mechanism in the rental market, and by further relating rents to household income in the social housing sector. Monitor the effects of the social housing reforms in terms of accessibility and affordability for low-income households. Continue efforts to refocus social housing policies to support households most in need. ||   The Netherlands has made limited progress in implementing CSR 2: ·       No progress: The partial phasing out of mortgage interest deductibility has not been stepped up despite a recovery of the housing market and the economic environment. ·       Limited progress: The implementation of income-related rent increases has only shown a small increase in rents on top of inflation. The introduction of a more market-based pricing mechanism (‘Huursombenadering’) to support mobility in the housing market was planned to be adopted after two years of income-related rent increases (introduced in 2013), but the introduction of this system has been postponed until at least the beginning of 2016. ·       Some progress: Effects of the reforms on accessibility (reduction of waiting lists) and affordability of social housing and the number of tenants above the income threshold for social housing (‘scheefhuurders’) cannot be assessed yet. ·       Some progress: The government presented a law proposal for splitting the responsibilities between SGEI and non-SGEI. Social housing corporations can choose between a legal split and a weaker form of administrative split. This law proposal is planned to be adopted in 2015. 
 CSR 3 Implement reforms of the second pillar of the pension system, ensuring an appropriate intra- and inter-generational distribution of costs and risks. Underpin the gradual increase of the statutory retirement age with measures to improve the employability of older workers. Implement the envisaged reform in the area of long-term care with a view to ensure sustainability, while ensuring fair access and the quality of services and monitor its effects. ||   The Netherlands has made substantial progress in implementing CSR 3: ·       Some progress: The reform of the second pillar of the pension system to ensure an appropriate distribution of costs and risks and to keep the Dutch pension system resilient to financial shocks in the long term is still subject to cumbersome negotiations. A new law reducing the fiscally exempted annual accrual rates to 1.875% in 2015 and the proposal for reforming the financial assessment framework were adopted in 2014. ·       Fully addressed: The Netherlands has continued taking measures to improve older workers’ employability and to increase mobility and participation of older workers. The law proposals for reform of the unemployment benefit system and the employment protection legislation have been adopted and additional measures aimed at older workers’ employability have been taken (‘Actieplan 50+ werkt’). The effective retirement age and older workers’ labour participation in the Netherlands keep increasing. ·       Some progress: The comprehensive reforms of the long-term care system have all been adopted by the parliament and have entered into force on 1 January 2015. The government took additional measures to ensure smooth transition of the responsibilities for parts of the long-term care system to municipalities and private insurers but the effects of the reform remain to be seen. 
 CSR 4 Take further measures to enhance labour market participation particularly among people at the margins of the labour market and to reduce tax disincentives on labour. Implement reforms of employment protection legislation and the unemployment benefit system, and further address labour market rigidities. In consultation with the social partners and in accordance with national practice, allow for more differentiated wage increases by making full use of the existing institutional framework.     ||   The Netherlands has made some progress in implementing CSR 4: ·       Substantial progress: Most of the labour market reforms aimed at increasing labour participation of people at the margin of the labour market were adopted by the parliament during the summer of 2014. The participation act has been implemented as of 1 January 2015. The Quota act, following the agreement between the government and social partners to hire at least 125 000 people with a disability, has been sent to the parliament and is expected to be adopted at the beginning of 2015. The reforms constitute a major shift of responsibilities to the municipalities. The smooth transition will be supported by the government. ·       Some progress: Important tax measures to provide incentives to work have been implemented. This includes increasing labour tax credits for lower incomes and simplifying child schemes in a way that makes working more attractive, especially for single parents. In September 2014, a comprehensive reform of the Dutch tax system was announced. This reform, which could include a tax shift from labour to other forms of taxation, which are less detrimental to the Dutch economy, such as taxation of property, environment and consumption, still needs to be elaborated. ·       Some progress: Reforms of the unemployment benefit system and employment protection legislation have been adopted and will be gradually implemented in the course of 2015. The way these reforms affect labour market mobility and reduce labour market duality remains to be seen. ·       No progress: As regards wage developments, the government has made clear that this is solely a task for the social partners. No national policies will be implemented in this field. 
 Europe 2020 (national targets and progress) 
 Employment rate target set out in the Netherlands: 80%. || The employment rate was 77.0% in 2011, 77.2% in 2012 and 76.5% in 2013. In view of past performance, and based on the recovery the Dutch labour market shows, the Europe 2020 employment rate target of 80% seems ambitious but feasible. 
 R&D target set out in the Netherlands: 2.5% of GDP. || The 2013 R&D intensity for the Netherlands stands at 1.98%, against 1.97 % in 2012 (2011: 1.89 %). Private R&D investments have increased slightly from 1.06 % in 2011 to 1.14 % of GDP in 2013 but still remain below the EU average (1.29 %). Public R&D intensity is stable at 0.84 %. The Netherlands is currently not on track to reach its 2.5 % target and would need additional efforts to reach it. 
 The Netherlands has an Effort Sharing Decision target to reduce non-ETS emissions by: 16% relative to 2005 levels by 2020. || Non-ETS greenhouse gas emissions decreased by 15% between 2005 and 2013. According to the latest national projections and taking into account existing measures, non-ETS emissions will decrease by 15% between 2005 and 2020. If no further action is taken, the target is consequently expected to be missed by 1 percentage point.  
 2020 renewable energy target: 14%. Proportion of renewable energy in all modes of transport: 10%. || In 2013, the share of energy from renewable sources in gross final energy consumption was 4.5%, which is well below the interim target of 5.9% for 2013-2014. The Netherlands is not on track to achieve its 2020 RES target. The new SDE+ scheme (Stimulering Duurzame Energieproductie/Encouraging Sustainable Energy Production) and 2011-2012 awarded Renewable Energy Sector (RES) projects seem to deliver first results that started showing in 2013 statistics. Lead times between awarding premium and construction cause delays in uptake of RES capacities. 
 Energy efficiency target: 20%. The Netherlands has set itself an indicative national energy efficiency target of a reduction of 1.5% a year. This means it must reach a 2020 level of 60.7 Mtoe (megatonne of oil equivalent) in primary energy consumption and 52.2 Mtoe in final energy consumption. || Although primary and final energy consumption decreased between 2005 and 2012, the Netherlands is not on track to meet its national energy efficiency target for both primary and final energy consumption. The Netherlands has to increase its current efforts regarding energy efficiency to further decrease its current primary energy consumption (67.4 Mtoe in 2012) to be on track for its 2020 target. 
 Early school leaving target set out in the Netherlands: <8.0%. || The early school-leaving rate was 9.1 % in 2011, 8.8 % in 2012 and 9.2 % in 2013. In recent years the rapid decline of the early school-leaving rate was halted. However, considering the measures implemented to address the problem of early school leaving, it seems feasible that the target of 8 % will be reached. 
 Tertiary education attainment target set out in the Netherlands: >40%. || The tertiary education attainment rate was 41.1 % in 2011, 42.2 % in 2012 and 43.1 % in 2013. The target has already been achieved. 
 Target for reducing the number of people living in households with very low work intensity in number of people: - 100,000 (aged 0-64). || The number of people (aged 0-64) living in households with very low work intensity was: 1 678 000 in 2011, 1 635 000 in 2012 and 1 624 000 in 2013. In the year the target was set (2008) 1 613 000 people aged 0 to 64 lived in households with very low work intensity. This number rose marginally, by 11 000 persons until 2013. 
 Table AB.1:     Macroeconomic indicators 
 Notes:       (1) The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.          (2) The indicator of domestic demand includes stocks.         (3) Unemployed persons are all those who were not employed, had actively sought work and were ready to begin working immediately or within two weeks. The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.         Source: European Commission 
 Table AB.2:     Financial Market indicators 
 Notes:       (1) Latest data November 2014. (2) Latest data Q2 2014.      (3) After extraordinary items and taxes. Basel II.      (4) Latest data September 2014.      (5) Latest data June 2014.  Monetary authorities, monetary and financial institutions are not included.      * Measured in basis points.      Source: IMF (financial soundness indicators); European Commission (long-term interest rates); World Bank (gross external debt); ECB (all other indicators). 
 Table AB.3:     Taxation indicators 
 Notes:       (1). Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission (2014), Taxation trends in the European Union, for a more detailed explanation.      (2). This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.      (3). VAT efficiency is measured via the VAT revenue ratio. It is defined as the ratio between the actual VAT revenue collected and the revenue that would be raised if VAT was applied at the standard rate to all final (domestic) consumption expenditures, which is an imperfect measure of the theoretical pure VAT base. A low ratio can indicate a reduction of the tax base due to large exemptions or the application of reduced rates to a wide range of goods and services (‘policy gap’) or a failure to collect all tax due to e.g. fraud (‘collection gap’). It should be noted that the relative scale of cross-border shopping (including trade in financial services) compared to domestic consumption also influences the value of the ratio, notably for smaller economies. For a more detailed discussion, see European Commission (2012), Tax Reforms in EU Member States, and OECD (2014), Consumption tax trends.      Source: European Commission 
 Table AB.4:     Labour market and social indicators 
 Notes:       (1) Unemployed persons are all those who were not employed, but had actively sought work and were ready to begin working immediately or within two weeks. The labour force is the total number of people employed and unemployed. Data on the unemployment rate of 2014 includes the last release by Eurostat in early February 2015.       (2) Long-term unemployed are persons who have been unemployed for at least 12 months.       Source: European Commission (EU Labour Force Survey and European National Accounts) 
 Table AB.5:     Expenditure on social protection benefits (% of GDP) 
 Notes:       (1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).      (2) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national equivalised median income.        (3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing machine, viii) have a colour TV, or ix) have a telephone.      (4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.      (5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices (HICP) = 100 in 2006 (2007 survey refers to 2006 incomes)      (6) 2014 data refer to the average of the first three quarters.      Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 
 Table AB.6:     Product market performance and policy indicators 
 Notes:       (1) Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed. (2) Patent data refer to applications to the European Patent Office (EPO). They are counted according to the year in which they were filed at the EPO. They are broken down according to the inventor’s place of residence, using fractional counting if multiple inventors or IPC classes are provided to avoid double counting. (3) The methodologies, including the assumptions, for this indicator are presented in detail here: http://www.doingbusiness.org/methodology. (4) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are presented in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm (5) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for the product market regulation indicators) 
 Table AB.7:     Green Growth 
 2013 is not included in the table due to lack of data.        All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)                  Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)                  Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)                  Resource intensity: Domestic material consumption (in kg) divided by GDP (in EUR)                  Waste intensity: waste (in kg) divided by GDP (in EUR)        Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP          Energy weight in HICP: the proportion of "energy" items in the consumption basket used for the construction of the HICP        Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % change)        Environmental taxes over labour or total taxes: from DG TAXUD’s database ‘Taxation trends in the European Union’        Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)         Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP        Electricity and gas prices for medium-sized industrial users: consumption band 500–2000MWh and 10000–100000 GJ; figures excl. VAT.        Recycling rate of municipal waste: ratio of recycled municipal waste to total municipal waste        Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP        "Proportion of GHG emissions covered by ETS: based on greenhouse gas emissions (excl LULUCF) as reported by Member States to the European Environment Agency "        Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value added (in 2005 EUR)        Transport carbon intensity: greenhouse gas emissions in transport activity divided by gross value added of the transport sector        Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of international bunker fuels        Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin        Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels        Renewable energy share of energy mix: %-share of gross inland energy consumption, expressed in tonne oil equivalents        * European Commission and European Environment Agency        ** For 2007 average of S1 & S2 for DE, HR, LU, NL, FI, SE & UK. Other countries only have S2.        *** For 2007 average of S1 & S2 for HR, IT, NL, FI, SE & UK. Other countries only have S2.        Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated below 
([1])  Source: Eurostat, gross debt-to-income
ratio of households is defined as loans and liabilities divided by gross
disposable income with the latter being adjusted for the change in the net
equity of households in pension funds reserves.
([2])  The long term average saving rate of
households is calculated over the period 1995-2013. For a quantitative analysis
of deleveraging pressures, see Cuerpo et al (2013). 'Indebtedness,
Deleveraging Dynamics and Macroeconomic Adjustment' European Economy.
Economic Papers. 477. 
([3])  For a further analysis, see the
in-depth review of the Netherlands (2014). Since the turn of the century, real unit
labour costs rose by around 3 % in the Netherlands, which is comparable with
the increase in France and Belgium, but markedly above Germany where real unit
labour costs declined in the same period (2000-2013). 
([4])  See Gorning and
Schiersch (2014). 'Weak Investment in the EU: A Long-Term Cross-Sectoral
Phenomenon' DIW Economic Bulletin 7 for a decomposition of investment intensities
over de period 1999-2007.
([5])  In depth review for the Netherlands
(2014)
([6])  In the following section, current
account data are reported according to BPM5 standards (the 5th edition of the
IMF's Balance of Payments Manual). In 2014, Statistics Netherlands switched to
new BPM6 reporting standard for international trade statistics, which caused
several breaks in time series, especially for trade in services. For
consistency reasons and in order to include longer time series, this section
includes data according to BPM5.
([7])  According to the American Association
of Port Authorities, Rotterdam harbour was the 4th busiest port in total cargo
volume and the 11th busiest harbour in container traffic in 2012.
([8])  Reference period: January-August 2014.
Source: Statistics Netherlands. 
([9])  The size of the Dutch economy allows
for only moderate outward spillovers for most other Member States via the trade
channel. In particular spillovers to southern countries are marginal. The high
degree of economic and financial openness of the economy exposes the
Netherlands to potentially significant inward spillovers from the USA and from
neighbouring Member States (Belgium and Germany) along the trade, financial and
banking channels.
([10]) Kuypers, F.,
Lejour, A., Lemmers, O., & Ramaekers, P., Kenmerken van
wederuitvoerbedrijven. Centraal Planbureau/Centraal Bureau Voor de
Statistiek, The Hague/Heerlen, 2012.
([11]) No breakdown of service imports is
available for Bermuda. The service flows are most likely due to royalty &
license fees. See box 5 "Tricks of the Trade" of the IMF's Fiscal
Monitor: www.imf.org/external/pubs/ft/fm/2013/02/fmindex.htm
([12]) Statistics Netherlands does not report the
breakdown for the item "royalties & license fees". Since the
other items add up to 11%, it can be concluded that royalties & license
fees represent 89% of Dutch service exports to Ireland.
([13]) Data on FDI stocks excluding SFIs is
not available.
([14]) Source: BIS. https://www.bis.org/statistics/consstats.htm
([15]) SFIs are special purpose entities owned
by non-residents that mainly deal with channelling funds through the
Netherlands, from non-residents to non-residents.
([16]) In national accounting, cross-border
transactions in goods and services, together with incomes earned abroad and
paid to foreigners make up the current account balance. This together with the
capital account balance, the in- and outflow of capital, determine whether the
economy as whole has been a net provider of finance (net lender) or the
opposite (net borrower).
([17]) Finance, Household and Consumption
Network, The Eurosystem Household Finance and Consumption Survey. Results from
the First Wave. ECB Statistics Paper 2, 2013.
([18]) Here, the saving rate is calculated as
gross savings divided by disposable income, with data from national accounts.
([19]) Only 12 Member States, for which data
are available, are accounted for in the euro area average. 
([20]) Eggelte, J., R. Hillebrand, R.,
Kooiman, T., Schotten, G.,, Het nationale spaaroverschot ontleed, DNB
Occasional Studies, 2014.
([21]) Jansen, C.,
Ligthart, M., Spaaroverschot niet-financiële bedrijven: ontwikkeling, oorzaken
en gevolgen, CPB Achtergronddocument, 2014.
([22]) The National Mortgage Guarantee (NHG)
scheme is run by the Homeownership Guarantee Fund
(WSW), which is guaranteed by the government. Getting an NHG is financially
interesting for borrowers as the costs attached to it do not cover the risks
the government is taking. See box 4.1 in Macroeconomic Imbalances Netherlands
2014, European Economy, Occasional Paper 185, March 2014
([23]) See In Depth Review for the Netherlands
(2014) for a detailed discussion of the institutional features leading to the
build-up of the high level of household debt. 
([24]) These estimates should be viewed with
caution as there are savings in mortgage-related products that do not show up
in the statistics.
([25]) Source: National Accounts 
([26]) Ampudia, M., Van Vlokhoven, H. and
Zochowski, D., Financial Fragility of Euro Area Households. ECB Working
Paper Series, 1737, 2014. 
([27]) Expertisecentrum Woningwaarde, Monitor
koopwoningmarkt (2014).
([28]) OECD Revenue Statistics 2014 – The
Netherlands
([29]) Social security contributions OECD
Revenue Statistics 2014 – The Netherlands. While the tax wedge does not stand out compared with other Member
States, the rate of non-tax compulsory payments is particularly high in the
Netherlands. Based on the OECD tax database, which takes health care and
pension contributions into account, the Netherlands is one of the countries
with the highest marginal burden on labour.
([30]) http://www.oecd.org/ctp/tax-policy/Non-tax-compuslory-payments-2013.pdf
([31]) The inactivity, unemployment and low
wage traps for a single person earning 67% of the average wage (or rising from
33% to 67% in case of the low wage trap) amounted respectively to 80%, 83.8%
and 73.6% in 2013 (against a EU average of respectively 54.3%, 75.1% and
41.2%).
([32]) Eunomia Research & Consulting with
Aarhus University and IEEP, 'Study on Environmental Fiscal Reform Potential in
14 EU Member States', Draft final report, 22.10.2014.
([33]) Jongen, E., De Boer, H.-W., Dekker, P.,
MICSIM – A behavioural microsimulation model for the analysis of taks-benefit
reform in the Netherlands, CPB Background document, 27 November 2014, The Hague
([34]) A draft law to increase pensionable age
at a faster pace was sent to the parliament recently.
([35]) No statement in this document prejudges
the outcome of the assessment of the compliance of the Dutch fiscal framework
with the legal requirements introduced by Directive 2011/85, the Fiscal Compact
or the ‘Two-Pack’ (Regulations 472/2013 and 473/2013) 
([36]) Short-term multipliers of
expenditure-based measures are typically higher than the short-term multipliers
of revenue-based measures.
([37]) Also short-term work arrangements
available to employers ('werktijdverkorting' and 'deeltijd ww') may have
cushioned the labour market reaction, although the actual use of these programs
was rather limited compared to the stocks and flows on the labour market (see
Hijzen and Venn (2011). The Role of Short-Time Work Schemes during the
2008-2009 Recession, OECD Social, Employment and Migration Working Papers,
No 115 and the evaluation report 'Werkt werktijdverkorting?' by APE Onderzoek
& Advies, May 2012.
([38]) According to EUROPOP 2013, the most
recent population prognosis by Eurostat, the old age dependency ratio is set to
double from currently 1 person aged 65+ to 4 persons aged 15-65 up to 1 to 2 in
2045. The median age of the population is expected to increase from 42 to 45
between 2014 and 2040.
([39]) Eurostat, Labour Force Survey.
([40]) Eurostat: the gap in employment between
non-EU nationals and total employment in the Netherlands is 26 p.p. in 2013.
([41]) The over-qualification rate (share of
highly educated working in low or medium skilled occupations) is much higher
for non-EU nationals (26.2%) than for Dutch nationals (15.8%). Source:
Eurostat; Labour force survey 2013.
([42]) SCP, Den Haag, September 2014,
Huwelijksmigratie in Nederland, Achtergronden en leefsituatie van
huwelijksmigranten and SER advies 14/03, April 2014, “Discriminatie werkt niet”
.
([43]) NL: 42.7%, EU: 47.3%. Source: Eurostat
news release 184/2014, 2-12-14. 
([44]) Youth unemployment Q2 2014: 10.6% EU28:
21.7%, NEET 2013: 5.1% EU28: 13.0%.
([45]) Source: Statistics Netherlands
([46]) European Commission (Eurostat: Labour
force survey; ilc_lvhl32); EU-average 24.1%.
([47]) Merging of ‘Wet Werk en
Bijstand’ (WWB), ‘Wet Sociale Werkvoorziening’ (WSW) and parts of the ‘WAJONG’
into one act: ‘Participatiewet’.
([48]) E.g. by implementing an obligation to
perform public labour in exchange for benefits (‘verplichte tegenprestatie’)
and introduction of a household (before individual) means testing
(‘kostendelersnorm’) to assess welfare eligibility.
([49]) http://www.rijksoverheid.nl/ministeries/szw/documenten-en-publicaties/notas/2014/06/18/nederlandse-initiatieven-om-jeugdwerkloosheid-te-voorkomen-en-te-bestrijden.html

([50]) Wet Werk en Zekerheid, adopted on 10 June 2014. 1 July 2015: Better protection to people with a flexible contract by
introducing a right for severance pay (after two years), tightening the
conditions for offering and extending flexible contracts, simplifying dismissal
procedures by offering one dismissal route. 1 January 2016: Gradually reducing
the (publically funded) rights to unemployment benefits from 38 to 24 months in
2019, reducing the pace of accrual of unemployment benefits rights.
([51]) Nationally funded part. Social partners
can agree to supplement the maximum with an additional year.
([52]) Berkhout, Bisschop
and Volkerink, Grensoverschrijdend aanbod van personeel, Verschuivingen in
nationaliteit en contractvormen op de Nederlandse arbeidsmarkt 2001-2011, SEO
Economisch Onderzoek, November 2014. 
([53]) Wet Aanpak Schijnconstructies and Wet aanscherping handhaving en
sanctiebeleid SZW-wetgeving (Fraudewet)
([54]) The number has increased from 1613000
in 2008 to 1624000 in 2013 (age category 0-64). 
([55]) The percentage of people living at risk
of poverty or social exclusion increased from 14.9% in 2008 to 15.9% in 2013
and the percentage of people experiencing severe material deprivation rose from
1.5% in 2008 to 2.5% in 2013. The percentage of people living at risk of
poverty after social transfers decreased slightly (10.5% in 2008 to 10.4% in
2013).
([56]) Income inequality as defined by the
S80/S20 indicator. Source: European Commission (Eurostat: European Union
Statistics on Income and Living Conditions (SILC); ilc_di11)
([57]) SCP, CBS, Den Haag, December 2014, Armoedesignalement
2014. 
([58]) Draft Budgetary Plan 2014.
([59]) Kamervragen Begroting OCW: referentie 155 en 166.
([60]) http://www.oecd.org/pisa/keyfindings/pisa-2012-results-
overview.pdf
([61]) http://www.oecd.org/site/piaac/
([62]) http://www.talis2013.nl/cms/userfiles/files/TALIS-2013-country-note-Netherlands.pdf
([63]) CPB Background Document, June 2014, The
Dutch labour market during the Great Recession.
([64]) "Digivaardig", "Digiveilig" and the "Techniekpact".
Nationaal Techniekpact 2020. 
([65]) 'Total investment in research and innovation (TWIN) 2013-2019)', Rathenau
Institute, published in February 2015.
http://www.rathenau.nl/publicaties/publicatie/voorpublicatie-totale-investeringen-in-wetenschap-en-innovatie-twin-2013-2019.html
([66]) Assessing the Potential Cost Savings and Resource Savings of
Investments in 4 SME sectors, European Commission 2015.
([67]) European Commission SAFE Survey 2014
([68]) The interim renewable energy share
(RES) target was 4,7% for 2011-2012. The RES share reached 4,3% in 2011 and
4,5% in 2012. For 2013-2014 the interim target is 5,9%, but according to Statistics
Netherlands, the 2013 RES share was only 4,5%. 
([69]) http://www.inrix.com/scorecard/key-findings-us/

([70]) The following categories are used to
assess progress in implementing the 2014 country specific recommendations: No
progress: The Member State has neither announced nor adopted any measures
to address the CSR. This category also applies if a Member State has
commissioned a study group to evaluate possible measures. Limited progress:
The Member State has announced some measures to address the CSR, but these
measures appear insufficient and/or their adoption/implementation is at risk. Some
progress: The Member State has announced or adopted measures to address the
CSR. These measures are promising, but not all of them have been implemented
yet and implementation is not certain in all cases. Substantial progress:
The Member State has adopted measures, most of which have been implemented.
These measures go a long way in addressing the CSR. Fully addressed: The
Member State has adopted and implemented measures that address the CSR
appropriately.